Why Is Time Warner 'On Fire'?

Time Warner Inc (NYSE: TWX) posted fourth-quarter results Wednesday, beating earnings expectations and increasing its guidance for 2016. However, the entertainment giant fell nearly $500 million short of its revenue target. Fourth-quarter EPS came in at $1.06, ahead of Street expectations of $1.01. The company claimed $7.1 billion in revenue against expectations of $7.53 billion.

The company pointed to awards-season recognition of properties like "Game of Thrones" and "Mad Max: Fury Road" as proof of the company's continued "creative and programming excellence," according to CEO Jeff Bewkes.

The Street bit Time Warner for the revenue slip, with share price down about 2 percent Wednesday afternoon.

Related Link: Time Warner Reports Mixed Q4, But Issues Better-Than-Expected Guidance

Albert Fried analyst Rich Tullo was bullish on Time Warner's 2016 outlook, noting the company had a strong summer movie line-up and made major inroads in China in 2015. Time Warner's Warner Bros. blockbuster slate includes comic-book films like this spring's "Batman v. Superman: Dawn of Justice" and the summer's "Suicide Squad," as well as four-quadrant fare like July's "The Legend of Tarzan."

Tullo referred to these films as "annuities," meaning the films will become franchise investments that will generate revenue past the first film in the form of books, video games and sequels.

Tullo also pointed to a strong performance from HBO, which added 2.7 million subscribers in the year, 800,000 of which were HBO GO.

Tullo concluded, Time Warner shares were "extremely undervalued" amid "cord-cutting fears," calling the stock a "great opportunity." He gave the company an Overweight rating and a $90 price target.

Time Warner shares surged slightly around noon Wednesday before settling at $62.11 at time of writing.

Image Credit: By Gage Skidmore from Peoria, AZ, United States of America - George R. R. Martin, CC BY-SA 2.0, https://commons.wikimedia.org/w/index.php?curid=34323127