- UBS raises its rating to buy for Time Warner shares, predicting its merger with AT&T will go through.
- But even if the deal fails, Time Warner shareholders will win, UBS says.
UBS raised its rating to buy from neutral for Time Warner shares, citing the importance of the company's quality assets such as HBO in a streaming world.
The Justice Department sued to block the $85 billion acquisition of Time Warner by AT&T in November, citing antitrust concerns.
"While we expect AT&T's acquisition of Time Warner to be approved, we believe this environment would make Time Warner's assets highly attractive to other media companies and internet-based competitors were the deal to be blocked," analyst John Hodulik wrote in a note to clients Monday. "Recent M&A multiples suggest little downside (and potential competitive bidding) for these assets were the deal to get rejected."
Hodulik reaffirmed his $108 price target for Time Warner shares, representing 13 percent upside to Friday's close.
The analyst noted that the Justice Department's brief said a merger between AT&T and Time Warner will lead to only a 45 cents per month increase in pay TV bills. Hodulik said the figure represents less than 1 percent of AT&T's average revenue per video subscriber.
"We also still find it difficult to understand why the DoJ believes pairing Time Warner assets with AT&T would give it any kind of scale advantage in content or distribution given the growth of digital," he wrote. "Claims in the DoJ brief that AT&T could work with Comcast to keep content off of vMVPDs [virtual multichannel video programming distributors] and use HBO against competitors do not reflect the realities of the OTT [over the top] world, in our view."
The analyst predicts the deal will close by mid-2018.
Time Warner shares are up 0.7 percent Monday.
Disclosure: Comcast is the owner of NBCUniversal, the parent company of CNBC and CNBC.com.
— CNBC's Michael Bloom contributed to this story.