Analyst touts TBS stock

Excited by Turner Broadcasting System’s growth opportunities, Oppenheimer analyst Jessica Reif yesterday put a buy recommendation on the company’s shares.

The recommendation followed TBS’ announcement Monday that its TNT and Cartoon Network will launch in Europe this September as a single 24-hour service.

The company also confirmed plans to start broadcasting the Cartoon Network in Latin America beginning April 30.

The move sent the stock up, with TBS Class A shares closed yesterday at $ 21. 50 a share, up $ 1.50, or 7.5%. TBS Class B shares gained $ 1.50 to close at $ 21.125 a share.

Reif said she put a “buy” on the stock for a number of reasons.

o Rival cable programmers will be hard-pressed to duplicate TBS’ efforts. It owns extensive programming libraries, two major sports teams and guaranteed space on the cable box, since its shareholders are the major MSOs themselves (they hold 50% of Turner and 22.7% of the voting shares). These factors let TBS launch new networks more cheaply.

“Cartoon Network is expected to lose $ 20 million before it breaks even,” Reif noted. “Any other start-up cable channel would probably lose $ 100 million to $ 150 million before reaching break-even.”

o TBS’ networks are just beginning to exploit overseas markets, with CNN already profitable outside the United States and TNT Latin America having reached profitability after only two years.

o Because TBS owns its programming libraries, its costs will remain fairly fixed, even as the networks expand both domestically and overseas. “Margins should explode at the entertainment networks,” Reif predicted. The libraries now provide 50% of Superstation WTBS’ programming, 75% of TNT’s and 100% of the Cartoon Network’s.

o TBS should not be adversely affected by competing technologies. Reif pointed out that it does not matter whether cable, telcos, DBS or MMDS is carrying the video signal — programming will be in demand.

Reif is predicting strong growth for TBS for at least the next five years. The company is projected to report double-digit cashflow growth and even stronger earnings growth for the foreseeable future (even with significant spending increases of up to $ 50 million for new businesses in 1994.)

Reif’s 12- to 18-month price target for the stock is $ 24.40 per share, an increase of 24% from current levels. Turner’s stock had been drifting downward since the company reported disappointing fourth-quarter operating results.

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