Saying that Time Warner Inc. (TWX) is undervalued after spinning off its cable operations, Citigroup analyst Jason Bazinet said that the stock is "inexpensive" and could add an additional 20 percent to its price over the next year. Shares in the conglomerate rose on the comments.
The underlying reason for the positive outlook is that the company spun off Time Warner Cable (TWC) which is now publicly traded separate from the former parent. Bazinet rates it "Buy" and has a target of $24 on it. The stock closed at $20.51, which was up by 2.2 percent, or 44 cents per share.
"To our surprise, the pull back in Time Warner shares is almost exclusively tied to movements in Time Warner Cable," Bazinet wrote. "In effect, Time Warner is trading just like a cable stock."
The stock has had wide swings this year, from a low of $15.70 to a high of $23.15.
Time Warner still holds 85 percent of the stock of the cable company, but now is only 40 percent of the company's enterprise value. That value is determined by adds equity value to debt.
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