Can Time Warner Cable Continue to Surge Higher?

With shares of Time Warner Cable (NYSE:TWC) trading around $136, 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:

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, the Carolinas, Ohio, Southern California, and Texas. The company offers its residential and business services customers numerous 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.

Time Warner Cable shares rose above the price of $132.50 per share offered on Monday by smaller rival Charter Communications Inc, a deal that was swiftly rejected by the No. 2 U.S. cable TV operator. Time Warner Cable’s shares were up 3 percent at $136.40 on Tuesday morning, suggesting some investors expect a higher bid. Calling the bid “grossly inadequate,” Time Warner Cable rejected the $37.3 billion offer, the third attempt by Charter to acquire the company. Analysts said Time Warner Cable’s demand of $160 per share was reasonable and Charter could raise its bid. ”We believe something in the neighborhood of 10 percent near-term upside (for Time Warner) if an agreement at TWC’s asking price of $160 were to be announced is reasonable,” Stifel Nicolaus analyst Christopher King said in a note. Charter’s Chief Executive Tom Rutledge said the company now planned to take the deal directly to Time Warner Cable shareholders. Charter proposed to pay around $83 per share in cash and the rest in its own stock. Including debt, the deal is worth about $62.35 billion.

T = Technicals on the Stock Chart Are Strong

Time Warner Cable stock has been trading sideways in recent times. The stock is currently surging higher and looks poised to continue. 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 Cable is trading above its rising key averages, which signal neutral to bullish price action in the near-term.

TWC

(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.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Time Warner Cable options

17.51%

0%

0%

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

Put IV Skew

Call IV Skew

February Options

Flat

Average

March 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 very small 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 the conclusion.

E = Earnings Are Mixed 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 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 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

-29.23%

14.69%

11.67%

-3.74%

Revenue Growth (Y-O-Y)

2.89%

2.70%

6.64%

9.85%

Earnings Reaction

2.79%

3.16%

-0.58%

-11.28%

Time Warner Cable has seen mixed earnings and increasing revenue figures over the last four quarters. From these numbers, the markets have had conflicting feelings about 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 sector?

Time Warner Cable

Comcast

Dish Network

DirecTV

Sector

Year-to-Date Return

0.85%

1.34%

-2.56%

2.72%

1.58%

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 rejected the $37.3 billion offer, the third attempt by Charter to acquire the company. The stock has been trading sideways in recent times, but is currently surging higher. Over the last four quarters, earnings have been mixed while revenues have been rising which has produced conflicting feelings among investors. Relative to its peers and sector, Time Warner Cable has been an average year-to-date performer. WAIT AND SEE what Time Warner Cable does this quarter.

 

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