Fourth quarter results came out February 2, and Time Warner (NYSE:TWX) delivered good news, growing revenues by 8% to $7.8 billion and net earnings 22% to $769 million. The strong finish to 2010 bodes well for 2011. The company's film, television and publishing divisions all increased revenues in the past year. To keep the pedal to the floor, CEO Jeff Bewkes says it plans to continue its global expansion. With Time Warner Cable (NYSE:TWC) and AOL (NYSE:AOL) distant memories, the content king appears to be a very appealing long-term investment.

IN PICTURES: Learn To Invest In 10 Steps

Global Push
In the past few years, Time Warner's expanded the HBO brand through joint ventures in Europe, Asia and Latin America. In order to take advantage of the growth in these growing markets, the company is made a concerted effort to take control of these entities. In January 2010, it acquired 100% of HBO Central Europe, a joint venture with Sony (NYSE:SNE) and Walt Disney (NYSE:DIS). In February 2010, it acquired majority control of NDTV Imagine Limited, a Hindi general entertainment channel in India. Earlier deals saw it acquire majority economic control of HBO Asia, HBO South Asia and HBO Latin America. These acquisitions will pay dividends down the road.

TV Everywhere
As part of its earnings announcement, Time Warner announced its partnership with Comcast (Nasdaq:CMCSA) to allow cable subscribers to watch Time Warner properties such as TNT and TBS over the internet. Its "TV Everywhere" concept will be in 70 million homes by the middle of 2011. Bewkes believes the additional affiliate fees it will receive from Comcast and others (because of the multiple platforms available to watch its shows) will be a major driver of growth in the coming years. More importantly, it signals that people are still willing to pay for television content and while its plans have been slow moving until now, the announcement suggests it will profit nicely.

Video on Demand
On the film front, Time Warner looks to make more money from its Warner Brothers division, implementing "premium" video-on-demand in the second quarter. Its movies will be available a month sooner on cable and the internet, just 60 days after theater release and before DVD release. The cost to customers will be between $30 and $60.

In concert with this move, the company likely will revisit its DVD distribution agreements with Netflix (Nasdaq:NFLX) and Red Box, both in terms of the time the companies would have to wait to get films and how much they'd pay. It's too early to tell what this means to the bottom line but you have to give it credit for pushing the envelope. It's about time movie companies got aggressive.

Ben Graham had a rule that he wouldn't look at any company whose current price-to-earnings ratio (three-year average) multiplied by its price-to-book was higher than 22.5. Time Warner's current product, using a two-year average instead of three due to large losses in 2008, is 18.8, well within the conservative investor's guideline. So too are its P/S and P/CF.

With a 2.4% yield and its entire business performing well, I see a stock that's trading below its future potential value. (The DCF method can be difficult to apply to real-life valuations. Find out where it comes up short. Check out Top 3 Pitfalls Of Discounted Cash Flow Analysis.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  2. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  3. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  4. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  5. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  6. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  7. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  8. Stock Analysis

    Yelp: Can it Regain its Losses in 2016? (YELP)

    Yelp investors have had reason to be happy recently. Will the good spirits last?
  9. Stock Analysis

    Is Walmart's Rally Sustainable? (WMT)

    Walmart is enjoying a short-term rally. Is it sustainable? Is Amazon still a better bet?
  10. Stock Analysis

    GoPro's Stock: Can it Fall Much Further? (GPRO)

    As a company that primarily sells discretionary products, GoPro and its potential falls right in line with consumer trends. Is that good or bad?
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center