• Time Warner Inc (NYSE: TWX) shares are down 16 percent year-to-date, declining steadily after hitting a high of $91.01 on July 16.
• BofA Merrill Lynch’s Jessica Reif Cohen downgraded the rating on the company from Buy to Neutral, while reducing the price objective from $95 to $79.
• Time Warner reported mixed 3Q15 results and the impact from its initiatives would take time to play out, Reif Cohen said.

Time Warner reported mixed results for 3Q15, with revenue growth of 5 percent y/y, as compared to the estimate of 6 percent. Adjusted EPS came in at $1.25, higher than the estimate of $1.10, the beat being driven by lower costs.

Analyst Jessica Reif Cohen said that the factors that drove the company’s 3Q15 results were:

1. Improved Turner AOI – which resulted from better adv revenues, weaker affiliate fees and lower program costs
2. Better HBO AOI – which resulted from higher-than-expected licensing revenue and lower program and marketing costs
3. Strong Warner Bros. AOI growth – which was helped by gaming strength and 2 Broke Girls and Person of Interest licensing

“Global Turner adv. growth remained a steady -1% in 3Q15, driven by flat core U.S. growth, low double digit underlying Int’l, offset by meaningful FX headwinds (a 20%+ drag),” Reif Cohen wrote. The US market is improving and the company is expected to generate global Turner adv. revenue growth of 2 percent in 4Q15.

The EPS estimate for 2015 remains unchanged at $4.68, since “increased prog./mktg./impairment expense at Turner and a more challenging 4Q at Warner offsets 3Q upside and better 4Q adv,” the analyst said.

Management has guided to 2016 EPS closer to $5.25, down from the $6 issued in 4Q14, taking into account many of the trends peers had already considered.

The EPS estimates for 2016 and 2017 have been reduced from $5.88 to $5.25 and from $7.29 to $6.56, respectively. Reif Cohen commented that Time Warner’s story appears “catalyst light,” since impact from its initiatives and HBO Now would need “more time to play out.”