Investors should buy Time Warner shares as the market is underestimating the chances the AT&T merger gets regulatory approval through asset sales and other remedies, according to Barclays, which raised its rating on the stock to overweight from equal weight.
The company's shares are trading at a deep discount to AT&T's $107.50 a share takeover offer as investors see governmental hurdles. Time Warner's $87.16 closing price Tuesday means investors see just a 31 percent chance of the merger going through by Barclays' math.
"Given the relative story at TWX on a standalone basis as well as the potential deal...we upgrade the stock," analyst Kannan Venkateshwar wrote in a note to clients Wednesday.
"We believe there are a number of ways for T to deal with regulatory concerns, especially with asset sales, although it is not clear at this stage if T is flexible on that front."