Thursday, December 10, 2009

Dating Advice for America Online = STAY SINGLE AWHILE (AOL, TWX)

AOL shares are being spun out of Time Warner.  For every 11shares of TWX stock owned, 1 share of AOL will be given.  This equates to about 106million shares of AOL outstanding, for a market value of $2.5billion.  With Free Cash Flow of about $1billion expected this year and next, the shares are a BARGAIN.


AOL shares are off today, and Wall Street is pretty bearish this morning, with several analysts initiating coverage with a SELL rating.

Don't get me wrong - AOL/TWX was likely the biggest merger failure in HISTORY, and AOL's business is a wreck, in a downward spiral that will be difficult to correct.  That said, I compare this situation to one I saw with Western Digital (WDC) last fall.  People were absolutely FREAKED about the threat to WDC from solid state drives, or flash drives.  It was a decent argument, but my point was that WDC was trading at a level where you would literally make your money back in Free Cash Flow before that argument over competitive products was even completed.

Could be a similar case here, with a potential Free Cash Flow Yield of 40%.  You could buy the company outright and make your cash back completely, while people still argue about AOL's viability.


(Disclosure - long AOL as of a few minutes ago)


Copyright 2009 AlphaNinja

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