MKM Likes Time Warner In 2016: Here's Why

• The share price of Time Warner Inc TWX has appreciated 9.05 percent over the past one month, reaching $72.99 on February 1.
• MKM Partners’ Eric Handler has maintained a Buy rating on the company, with a price target of $84.
• Handler believes that the company is in the early stages of a new content cycle and that the awaited catalysts were now close to materializing.

Analyst Eric Handler mentioned that Time Warner had recently announced that it expected its 2015 EPS ahead of the guidance, while reaffirming its guidance of domestic affiliate fee growth in the low teens for Turner during 2016 and 2017.

“This view, combined with an expectation for accelerated HBO sub growth and a strong franchise film slate, gives us increased confidence that our 2016 EPS estimate of $5.25 is more of a starting point rather than an ending goal,” Handler mentioned.

Despite “increased chatter” that shareholder activism might be able to drive the stock in the near term, management seems unwilling to spin-off HBO.

The revenue estimate for 4Q15 has been marginally raised from $7.523 billion to flat at $7.533 billion, largely to reflect the higher subscriber growth and increased rates at HBO. The year on year flat expectations also reflect 2 percent growth at Turner and 5 percent at HBO, offset by a 2 percent decline at Warner Bros.

“Improved scatter advertising demand and higher pricing should be a bright spot for Turner although this improvement is likely offset by ongoing FX headwinds,” Handler explained.

Management is expected to reiterate its full year EPS guidance of $5.25, at the very least.

The 4Q15 EPS estimate has been raised from $0.96 to $1.03.