Time Warner Deal Remains On Track To Close This Year

Time Warner Inc (NYSE: TWX)'s earnings per share came in above expectations in its first quarter report, but an update surrounding a mega-merger is dominating headlines.

Time Warner said it earned $1.66 per share on revenue of $7.7 billion in the first quarter, while analysts were expecting the company to earn $1.46 per share on revenue of $7.7 billion. Net income for the quarter rose from 17.3 percent from the same quarter a year ago to $1.42 billion.

Rosenblatt Securities' media analyst Alan Gould commented in a report that Time Warner's earnings beat was attributed to a domestic TV licensing sale (amount hasn't been quantified), along with upside from HBO in revenue and margins.

On the other hand, ad revenue at Turner was less than expected as it declined 2 percent in the quarter due to weak ratings; subscription revenue grew 12 percent.

Acquisition Is A Main Driver

Regardless of the quarter's performance, Gould argued that the "main driver" for Time Warner's stock is the proposed acquisition by AT&T Inc. (NYSE: T). Time Warner believes that the deal will close by the end of the year after a regulatory review is completed.

Gould acknowledged that the biggest risk to Time Warner's stock is that the proposed acquisition is blocked but the analyst is not expecting this to happen. In the unlikely event the deal is blocked, then Time Warner's stock will resume trading based on fundamentals and will lose the takeover premium.

Gould maintained a Neutral rating and $105 price target on Time Warner's stock, which represents a small discount to the $107.50 per share offer from AT&T.

See Also:

In A Consolidating Space, Acquisition Target Dish Network Could Be The 'Kingmaker'

Credit Suisse's Take On Apple Services Business, Potential M&A Targets