Time Warner needs to belt tighten

Time Warner will report its third-quarter figures on Wednesday 5 November, and traders are expecting a decline in earnings on an annual basis. 

A man walking past a large CNN sign
Source: Bloomberg

This Wednesday’s update will be the second set of quarterly figures since Twenty-First Century Fox walked away from its takeover attempt of the firm in August. The day after Rupert Murdoch dropped his takeover bid, Time Warner reported earnings that smashed estimates. Its second-quarter EPS came in at $0.98 versus $0.84 estimated, and investors would like to see a continuation of the strong results.

The multimedia giant had a good second quarter, with revenue increasing by 3% to $6.8 billion. TV stations like CNN were helped by higher subscriptions and an increase in advertising sales, but the popularity of TV shows like True Detective were the highlight of the announcement. Revenue from Home Box Office (HBO) jumped by 17%, with season four of Game of Thrones its most watched show on pay-per-view TV.

By knocking back the $85-per-share approach from Twenty-First Century Fox, Time Warner is under pressure to add shareholder value. The company is expected to announce job cuts in the quarterly update, with HBO likely to see its headcount trimmed by 7%. Next year the company is launching an online streaming service that will help capture audiences who don’t have pay-per-view TV.

Equity analysts are very bullish on the stock. Out of the 37 recommendations 27 are buys and ten are holds; the average target price is $87.27. The number of traders taking short positions on Time Warner has dropped by 37% since Rupert Murdoch walked away from the takeover attempt; the amount of short interest on Time Warner has fallen to its lowest level in 2014.

The consensus is for third-quarter revenue and EPS of $6.1 billion and $0.94 respectively, compared to 2013’s revenue and EPS of $6.9 billion and $1.01.

The 200-day moving average of $71.27 is providing support. Strong figures and a positive full-year outlook could push the stock to October’s high of $80.89, and then the next level would be the $81.43 area (the gap in July).

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