With shares of Time Warner Cable (NYSE:TWC) trading around $116, is TWC an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
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T = Trends for a Stock’s Movement
Time Warner Cable is a provider of video, high-speed data, and voice services in the United States, with systems located in five geographic areas: New York state, the Carolinas, Ohio, Southern California, and Texas. The company offers its residential and business services customers video, high-speed data, and voice services over its broadband cable systems. With such a large and growing user base, look for Time Warner Cable to continue to see rising profits from its media, entertainment, and communications offerings.
In recent news, Charter Communications (NASDAQ:CHTR) is teaming up with Goldman Sachs (NYSE:GS) to try and buy Time Warner Cable. John Malone’s Liberty Media (NASDAQ:LMCA) owns nearly a third of Charter Communications, and it has been speculated that the move is in part an attempt rebuild a former cable empire. However, Time Warner Cable turned down a merger with Charter Communications earlier this year. On the other hand, Time Warner Cable is reportedly still in negotiations to acquire a 25 percent take in Hulu, even after Hulu’s owners, Comcast (NASDAQ:CMCSA), Disney (NYSE:DIS), and 21st Century Fox (NYSE:FOXA), announced the site was not for sale.
T = Technicals on the Stock Chart are Strong
Time Warner Cable stock has seen a beautiful uptrend over the last few years. The company is now trading near all-time high prices, where it has not seen significant selling pressure. Analyzing the price trend and its strength can be done using key simple moving averages.
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What are the key moving averages? They are the 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Time Warner Cable is trading above its rising key averages, which signals neutral to bullish price action in the near-term.
(Source: Thinkorswim)
Taking a look at the implied volatility (red) and implied volatility skew levels of Time Warner Cable options may help determine if investors are bullish, neutral, or bearish.
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Implied Volatility (IV)
30-Day IV Percentile
90-Day IV Percentile
Time Warner Cable Options
34.26%
53%
50%
What does this mean? This means that investors or traders are buying a significant amount of call and put options contracts, compared to the last 30 and 90 trading days.
Put IV Skew
Call IV Skew
August Options
Flat
Average
September Options
Flat
Average
As of today, there is an average demand from call buyers or sellers, and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a significant amount of call and put option contracts, and are leaning neutral to bullish over the next two months.
On the next page, let’s take a look at the earnings and revenue growth rates, and what that means for Time Warner Cable’s stock.
E = Earnings Are Increasing Quarter-Over-Quarter
Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. The last four quarterly earnings announcement reactions can also help gauge investor sentiment on Time Warner Cable’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Time Warner Cable look like, and more importantly, how did the markets like these numbers?
2013 Q1
2012 Q4
2012 Q3
2012 Q2
Earnings Growth (Y-O-Y)
11.67%
-3.74%
140.70%
15.32%
Revenue Growth (Y-O-Y)
6.64%
9.85%
9.20%
9.30%
Earnings Reaction
-0.58%
-11.28%
-6.35%
2.73%
Time Warner Cable has seen increasing earnings and revenue figures over the last four quarters. From these numbers, it seems the markets have grown to expect more from Time Warner Cable’s recent earnings announcements.
P = Average Relative Performance Versus Peers and Sector
How has Time Warner Cable stock done relative to its peers, Comcast (NASDAQ:CMCSA), Dish Network (NASDAQ:DISH), DirecTV (NASDAQ:DTV), and the overall sector?
Time Warner Cable
Comcast
Dish Network
DirecTV
Sector
Year-to-Date Return
19.98%
18.76%
25.47%
29.59%
20.82%
Time Warner Cable has been an average relative performer, year-to-date.
Conclusion
Time Warner Cable provides entertainment, voice, and high-speed data services to a growing customer base in the United States. The company is looking to acquire a stake in Hulu in order to increase the firm’s competitiveness, however, other companies are looking to acquire Time Warner Cable. The stock has been on a strong move higher, and is now trading near all-time high prices. Over the last four quarters, investors in the company have expected a little more from recent earnings reports, though earnings and revenue figures have been steadily rising. Relative to its peers and sector, Time Warner Cable has been an average year-to-date performer. Look for Time Warner Cable to OUTPERFORM.
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Read the original article from Wall St. Cheat Sheet