Time Warner Shares Downgraded At UBS On Concern Of Limited Upside From AT&T Deal

By Trey Williams Markets MarketWatch Pulse

Analysts at UBS downgraded shares of Time Warner Inc. to neutral from buy on Monday. The media and entertainment company is well positioned within the media sector, thanks to its film and TV businesses and position in premium cable, but there's limited upside potential from current trading levels given the terms of AT&T Inc.'s proposed $85.4 billion merger, according to lead analyst Doug Mitchelson. He wrote that the stock's risk/reward is balanced since it is trading at a less than 10% spread to the offer value. Mitchelson laid out two pivotal questions: Will the deal garner regulatory approval? And, will Time Warner hit its operating budget in 2017? Newly appointed Federal Communications Commission Chairman Ajit Pai said last week he didn't think it was likely the commission would review the deal. "We continue to expect successful regulatory approvals and a deal closing around the end of 2017," Mitchelson wrote in a note to clients. "Given the AT&T merger has a modest breakup fee, it remains crucial that Time Warner performs reasonably close to its budgets." He said Time Warner is on track to hit its operating budgets, thanks to low-teens affiliate growth at Turner, and expected strong acceleration in HBO affiliate revenue. Shares of Time Warner have gained nearly 43% in the trailing 12-month period, while the S&P 500 index is up more than 18% during the same time frame.

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