At first glance, Time Warner (NYSE:TWX) shares seem to offer little for investors. Trading on a forward price-to-earnings multiple of 18, the media conglomerate is priced roughly in line with its closest peers, The Walt Disney Co. (NYSE:DIS) and News Corp. (NYSE:NWS). What's more, with share price catalysts hard to make out, shareholders are unloading stock. Its value has sunk 25% in the past year.

All the same, investors who trouble themselves to take a closer look will find hidden value locked-away inside the folds of Time Warner's vast corporate empire.

Sum Of The Parts
In a step toward releasing some of its hidden value, Time Warner announced the spinoff of Time Warner Cable (NYSE:TWC) last week. I would wager that cable is just the first of Time Warner's businesses to be set free. If I am right that's good news, because, doing the math with a sum-of-parts valuation, Time Warner's parts are worth much more on their own than if they are lumped together. (To learn more, check out Use Breakup Value to Find Undervalued Companies.)

The Parts

Cable
Let's start with cable. Time Warner owns 84% of roughly 977 million Time Warner Cable shares. Based on a cable share price of $30, its parent's current stake in the cable spinoff is worth about $25 billion. But I'd say that number undersells the cable company - its solid Q1 results say as much. Putting the cable company on 2008 EBITDA multiple of 5, still a hefty 30% discount from where Comcast (Nasdaq:CMCSA) trades, values Time Warner's stake at about $31.5 billion.

Filmed Entertainment
Then there is Film Entertainment, home of Time Warner's movie studios and its cinema and DVD distribution businesses. Assuming flat growth this year, the group will produce about $12 billion in revenue with EBITDA margin of 10%. Based on a forward EBITDA multiple of 10-times, a point less than Lions Gate Entertainment (NYSE:LGF), the film group is worth about $12 billion.

AOL
Internet subsidiary AOL continues to perform abysmally, with revenues possibly falling by a percentage or two this year. Even so, it still should generate more than $4.5 billion in revenue. Naturally, it doesn't deserve Google's (Nasdaq:GOOG) 10-times sales multiple, or even Yahoo's (Nasdaq:YHOO) multiple of 7. But valued at just 3-times sales, the online business is worth at least $12.5 billion. Of note, Goldman Sachs analyst Ingrid Chung reckons AOL would fetch $13 billion if it were put up for sale.

Publishing and Networks
Growth at Time Warner Publishing, the group behind People magazine and CNNMoney, will probably end the year essentially flat, with revenue of about $5 billion and EBITDA of about $600 million. On a multiple of 5 times EBITDA, the publisher is worth about $3 billion. Finally, Time Warner Networks including Turner and HBO, which is set to deliver 5% revenue growth and EBITDA margin of 33%, is worth about $36 billion based on Viacom's (NYSE:VIA) multiple of 8-times EBITDA. (For related reading, check out A Clear Look At EBITDA and EBITDA Challenging The Calculation.)

The Sum
Throw in $4 billion of free cash flow projected for this year, then subtract the media giant's $22 billion of net debt, and voilà, Time Warner is worth about $77 billion or $21.50 - some 30% higher than what the market currently gives it credit for. Sum-of-parts analysis and the prospect of further spinoffs give investors a good reason to give the media conglomerate a second look.

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