As the year comes to a close, Time Warner just got a bit of a disappointment — courtesy of Brean Capital analyst Alan Gould.
Gould downgraded TWX shares from “Buy” to “Hold.”
Why?
Gould explains, “We are reducing our rating … as the arbitrage discount to the AT&T offer has shrunk to 12%, down from the high-teens, and TWX is now trading above our fundamental value of the low 90s.”
Time Warner on Thursday (12/29) closed up 47 cents, to $96.69.
“We note that AT&T shares are now above the upside of the collar, so the deal is currently worth $109.29 in stock and cash, up from an initial value of $107.50,” Gould notes.
He also believes that other media stocks are more attractive — in particular, CBS Corp., which has a “Buy” rating from Gould and sees a newly raised target price of $75.
“Our fair value estimate is $104, a 5% discount to the deal value given the 1-year time horizon,” he says.
Gould says his Brean team still believes that AT&T and Time Warner will have a deal to merger approved, although there will be some regulatory conditions.
Should the deal fail to transpire, he believes other bidders could emerge, “which should help put a floor under the stock price.”
