Despite Murdoch's 21st Century Fox offer to buy media giant Time Warner for $80 billion, there's chatter the valuation could be low. For some time now, many have been wondering if Time Warner's HBO segment should be valued using, say, Netflix's valuation.
With its stock at $422 per share, Netflix's enterprise value of $24.9 billion is 59.8 times its earnings before interest, taxes, depreciation and amortization (EBITDA). HBO's EBITA in 2013 (companies report segment data once per year) was $1.89 billionaccording to Time Warner's SEC filings. Using Netflix's 59.8 times EBITDA valuation gives HBO a number of about $113 billion. That's $33 billion more than Murdoch is offering for all of Time Warner.
Is HBO really worth so much that Murdoch is vastly underpaying for Time Warner?
Steve Cortes, founder of Veracruz TJM, thinks using Netflix's valuation on HBO is a bad idea. "Netflix itself, in my view, is massively overvalued," he said. "And, by the way, Netflix has really gotten crushed the last three days. It's lost about 7 percent of its value so I think there's a problem there."
Cortes even posits that Murdoch has a tendency to buy things right before the market collapses.
"Rupert Murdoch, as brilliant as he is and as successful as he is, his market timing in the past has been very poor," said Cortes. "He bought Dow Jones in 2007 right before the market absolutely tanked. His big previous purchase before that was in the year 2000 when he bought the TV station company Chris-Craft Industries…. If anything, he might be a sign of bad market timing, not good."
That doesn't mean Time Warner won't trade for a higher price. Ari Wald, head to technical analysis at Oppenheimer & Co., likes the company's technicals.
"The charts aren't bad," Wald said. "We've liked Time Warner for a while. It's been a firm pick."
Wald said media as a bright spot in an otherwise weak sector. Since the start of 2014, the S&P 500's consumer discretionary stocks are up just 1.2 percent, the smallest return of any other sector.
On a 15-year chart, Wald sees Time Warner trading in an uptrend that began in 2009 at the market bottom. However, he believes it's overbought.
"For new longs I wouldn't be quite chasing the recent strength right here," Wald said. "I think shares do need a little bit of time to work sideways – work off some of these extended conditions."
But the stock could see resistance at around $113 per share, a level that was established in 2001, according to Wald.
"The trend is much more important than overbought conditions here," Wald said. "We'd be staying long the stock if you're in it."
To see the full discussion on Time Warner, with Cortes on the fundamentals and Wald on the technicals, watch the above video.