Is Time Warner a Buy Post-Earnings?

With shares of Time Warner (NYSE:TWX) trading around $66, is TWX an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Time Warner is a media and entertainment company. The company operates in three reporting segments: Networks, Film, and TV Entertainment and Publishing. Networks consist of television networks, premium pay, basic-tier television services, and digital media properties. Film and TV Entertainment consists of feature film, television, home video, and video game production and distribution, while Publishing consists of magazine publishing. Through its segments, Time Warner is able to move audiences around the world. With such a large and growing audience, look for Time Warner to continue to drive profits through its media and entertainment.

Time Warner on Wednesday reported financial results for its first quarter ended March 31. Chairman and CEO Jeff Bewkes said: “We are off to a very strong start in 2014, with results that demonstrate both the returns we can achieve on our investments in great storytelling and the growth potential of our businesses. Excluding Time Inc., which we expect to spin off as an independent publicly-traded company this quarter, we grew first quarter Revenues by 10%, Adjusted Operating Income by 12%, and Adjusted EPS by 26%.”

T = Technicals on the Stock Chart Are Mixed

Time Warner stock has been moving higher over the past couple of years. However, the stock is currently trading sideways and may need time to consolidate before heading higher. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Time Warner is trading between its rising key averages, which signals neutral price action in the near-term.

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of Time Warner options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Time Warner options

20.79%

10%

8%

What does this mean? This means that investors or traders are buying a small amount of call and put options contracts as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

May Options

Average

Average

June Options

Average

Average

As of Wednesday, there is average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a small amount of call and put option contracts and are leaning neutral over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Time Warner’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Time Warner look like and more importantly, how did the markets like these numbers?

2014 Q1

2013 Q4

2013 Q3

2013 Q2

Earnings Growth (Y-O-Y)

79.75%

-7.63%

50%

92.86%

Revenue Growth (Y-O-Y)

8.73%

4.91%

0.2%

10.25%

Earnings Reaction

1.41%*

1.1%

-0.79%

-0.37%

*As of this writing.

Time Warner has seen rising earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with Time Warner’s recent earnings announcements.

P = Average Relative Performance Versus Peers and Sector

How has Time Warner stock done relative to its peers – News Corp (NASDAQ:NWS), Walt Disney (NYSE:DIS), and Comcast (NASDAQ:CMCSA) – and sector?

Time Warner

News Corp

Walt Disney

Comcast

Sector

Year-to-Date Return

-5.77%

-8.08%

3.27%

-0.11%

-1.67%

Time Warner has been an average performer, year-to-date.

Conclusion

Time Warner provides media and entertainment through a variety of mediums to consumers and businesses all around the world. The company on Wednesday reported first-quarter earnings that left investors pleased. The stock has been moving higher but is currently trading sideways. Earnings and revenue figures have been increasing over the last four quarters. Relative to its strong peers and sector, Time Warner has been an average year-to-date performer. WAIT AND SEE what Time Warner does this upcoming quarter.

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