Is Time Warner's Stock Getting Unfairly Punished?

Shareholders of Time Warner Inc TWX are scratching their heads this week as the stock is down another 4 percent in early trading on Thursday following a nearly 9 percent dive on Wednesday in response to Q2 earnings. Here's a look at what is going on with Time Warner.
 

The numbers
What’s particularly frustrating for shareholders about the move is that the company easily beat consensus earnings and revenue expectations for the quarter, reporting earnings per share (EPS) of $1.16 and revenue of $7.35 billion versus consensus estimates of $1.03 EPS on revenue of $6.9 billion. The company reports record-high adjusted operating income of $1.86 billion and 8 percent year-over-year revenue growth for the quarter.

Macquarie’s take
Analyst Tim Nollen calls the market’s reaction to Time Warner’s earnings a “knee-jerk sell-off.” Nollen believes that the negative reaction from the market has to do with the fact that the company failed to raise 2015 guidance or comment on guidance beyond this year. “We believe the market read too much into this,” Nollen argues.

Although he admits that shareholders are justified in their concern over declining pay TV subscribers, Nollen sees the sell-off as a buying opportunity. Macquarie has an Outperform rating on Time Warner and a $100 price target for the stock.

Pacific Crest’s take
Analyst Andy Hargreaves agrees that Time Warner’s stock is being unjustly punished and sees a favorable risk/reward balance for the stock at its current price level. Although he concedes that “the pay-TV industry is likely to remain under secular threat,” Hargreaves believes that Time Warner is uniquely-positioned to continue to grow in the challenging environment.

Pacific Crest maintains its Overweight rating on Time Warner, but lowers its price target from $95 to $93.