It’s all moot, of course, as 21st Century Fox insists it’s done bidding for Time Warner.
Time Warner says it believes Fox, but that still leaves the holding-company owner of HBO, Turner and Warner Bros. in need of a stock-price fix.
Some investors even consider it a professional obligation, if not a moral one, for Time Warner to take its share price at least to the $85 that Fox took off the table on Aug. 5.
The quickest way to get there, according to Janney analyst Tony Wible, is to create a tracking stock for Time Warner’s crown jewel.
A tracking stock, which can be quickly issued and withdrawn, highlights a particular segment of a company by entitling investors to participate in its earnings. The segment’s ownership, meanwhile, remains with the entire company.
The crown jewel Wible wants Time Warner to highlight is HBO – billed as “the world’s most successful pay-tv service.”
And were it valued as a stand-alone, Wible’s analysis gives it a total worth of $30 billion and a tracking-stock price of $35 per Time Warner share.
The rest of Time Warner would be worth $60 per share, the analyst says, thus taking the sum of these two company parts to $95.
That’s not only more than the offer pulled by Fox but substantially higher than the $76.86 a Time Warner share commands today.
Wible’s analysis might even be conservative in that it values HBO at 15 times current Ebitda (earnings before interest, taxes, depreciation and amortization).
Netflix is trading at 30 times future Ebitda, by comparison, a premium Wible attributes to “investor optimism around future monetization.”
“HBO is arguably in a similar situation that would afford it a healthy multiple,” the analyst continues, especially if it adopts Netflix’s direct-service business model.
In fact, for every 10 million U.S. subscriptions to a direct service that left HBO with an extra $5 per month of revenue, Wible says the value of the Time Warner unit would increase by $7.2
billion.
That in itself would add $22 billion – based on its 30 million subscriber count – to the $30 billion Wible believes HBO is already worth today.