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TWX Poised For Big Returns

12/06/2009 2:00 AM Eastern

Collins Stewart media analyst Thomas Eagan raised his 12-month price target and estimates for Time Warner Inc., adding that the soon-to-be-pure-play media giant has the potential for significant shareholder returns.

In a research note last Monday, Eagan increased his 12-month price target on the stock to $38 per share from $33.50 per share. Eagan also raised his revenue and cash-flow estimates — he now predicts 2009 revenue will be $28.95 billion (up from $28.82 billion) and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) will be $6.76 billion, up from his previous estimate of $6.56 billion. Fueling that increase will be gains at Time Warner's cable networks (revenue should be $11.7 billion in 2009, on adjusted EBITDA of $4.1 billion).

For 2010, Eagan estimates that total revenue for Time Warner will be $29.1 billion (up from previous estimates of $28.9 billion) and adjusted EBITDA will be $7.1 billion (from $6.8 billion previously).

Time Warner also is moving forward with a split of its AOL online business by the end of the year, which would make the media giant a a pure-play content company consisting of cable networks such as CNN and TBS; movie studio Warner Bros.; and magazine publishing.

Adding to Time Warner's value is its ability to return cash to shareholders. Eagan noted that if the media giant increases leverage to 2 times cash flow from its current 1.5 times level, it would have $5 billion in funding capacity for share repurchases or to increase its existing dividend.

September