Is Time Warner Cable a Buy at All-Time Highs?

With shares of Time Warner Cable (NYSE:TWC) trading around $111, 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 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. Time Warner Cable has reportedly expressed interest in buying Cablevision (NYSE:CVC) and Cox Cable as the company looks to expand rather than be purchased by billionaire John Malone’s Liberty Media (NASDAQ:LMCA), which is interested in the company. Through its outlets, Time Warner is able to move audiences around the world. With such a large and growing audience, look for Time Warner to continue to see rising profits through its media and entertainment.

T = Technicals on the Stock Chart are Strong

Time Warner Cable stock has been on an explosive run towards higher prices over the last few years. The stock is now trading at all-time high prices and sees no significant signs of slowing. 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

38.47%

96%

93%

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

Put IV Skew

Call IV Skew

July Options

Flat

Average

August 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 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 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 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 mostly rising earnings and revenue figures over the last four quarters. From these numbers, the markets have had mixed 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 (NYSE:DTV), and sector?

Time Warner Cable

Comcast

Dish Network

Directv

Sector

Year-to-Date Return

14.57%

10.47%

18.46%

24.96%

16.67%

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

Conclusion

Time Warner Cable is a provider of video, high-speed data, and voice services to a large customer base across the nation. The company is planning strategic acquisitions in order to grow its network. The stock has been on a bullish run and is now trading at all-time high prices. Over the last four quarters, earnings and revenue figures have been on the rise, however, investors in the company have had mixed feelings about recent earnings announcements. 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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