Could a merger between Twenty-First Century Fox and Time Warner means it’s time to buy Time Warner stock?

Time Warner in the News

Rupert Murdoch’s Twenty-First Century Fox Inc (NASDAQ:FOXA) is currently trying to take over Time Warner Inc (NYSE:TWX), by offering a reported $85 a share plus cash, an approximate 25% increase over its current price. While Time Warner seemed to reject this overture, Rupert Murdoch doesn’t seem to be willing to give up…at least not yet.

Murdoch sees the potential of such a merger.  Combining networks and channels such as Fox, Fox News, FX with TNT, TBS, as well as HBO; and studios like 20th Century Fox with Warner Bros; as well as combining Fox’s sports coverage with Time Warner Inc (NYSE:TWX)’s broadcast rights in basketball (NBA and college) and Major League Baseball, Murdoch would be creating a media and sports powerhouse.

But, do the talks of a possible merger mean that the time is ripe to buy Time Warner stock?

Analyst Perspective

Twenty-First Century Fox Time Warner

On July 17th, Wells Fargo’s Marci Ryvicker reiterated an outperform on Time Warner, explaining that “Twenty-First Century Fox Inc (NASDAQ:FOXA)’s bid clearly underscores the value of the Time Warner Inc (NYSE:TWX) portfolio, which we didn’t think the market fully appreciated before. While we don’t know TWX’s overall “plans,” we do think the company is in a good position to negotiate a higher purchase price; and by FOXA’s statements, this isn’t a stretch. We think TWX has found a new “floor” with the potential to go to $100/share or above”

Ryvicker has an overall success rate of 69%, earning an average return of +13.8%.

Also reiterating an overweight rating is Wells Fargo’s Alexia S. Quadrani.

Quadrani explained that, “We believe FOX’s desire to acquire TWX’s blue chip asset portfolio (HBO, Warner Bros, Turner/Turner Sports) has strong strategic merits. However, as evidenced by the quick rejection of Fox’s $85 reported per share bid, we believe a much higher offer would need to be made to incentivize a sale given TWX is on the cusp of an accelerated earnings growth ramp and believes it can monetize its content assets globally just as effectively as if it were part of a larger company.”

Quadrani has an overall success rate of 90%, earning an average return of +15.7%.

On July 16th, just as the rumors about a possible merger between Fox and Time Warner started to emerge, Brean Capital analyst Todd Mitchell reiterated a Buy rating on Time Warner Cable Inc (NYSE:TWC), and raised the price target from $165.00 to $186.00, noting, “We believe that the acquisition of Time Warner Cable will create far greater synergies than what has been publicly discussed by either company. Comcast Corporation (NASDAQ:CMCSA) ($54.89, Buy) was a far better run company than TWC and NBCU appears to be in a structural renewal from prior underperformance. We foresee multi-billion opportunities for the combined company to create value in 1) raising TWC’s residential metrics to the level of Comcast’s, 2) combining the companies’ highly complementary enterprise businesses, 3) a potential entrée into wireless via the formation of an MVNO, and 4) leveraging the two companies’ national footprint to drive innovation into advertising.”

Mitchell has an overall success rate of 81%, earning an average return of +17.8%.  Regarding TWC recommendations, he has a 67% success rate, earning a 5.2% average return.

Conclusion

These top ranked analysts seem to agree that now is the time to buy shares of Time Warner Inc (NYSE:TWX).  Do you agree?