Is Time Warner Cable a Buy at Current Prices?

With shares of Time Warner Cable (NYSE:TWC) trading around $108, 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’s battle with CBS (NYSE:CBS) is now being mediated by the Federal Communications Commission. Three million Time Warner customers have not had access to CBS programming since August 2 as the two companies can’t seem to reach an agreement on retransmission fees. The FCC had previously been reluctant to intervene, but negotiations between the companies have deteriorated to the point that government intervention seems to be the only solution.

T = Technicals on the Stock Chart are Mixed

Time Warner Cable stock has been trending higher in recent times. The stock is currently pulling back from highs for the year so it may need time to find value. 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 between its key averages which signal neutral 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

29.49%

23%

22%

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

September Options

Flat

Average

October 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 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 Rising 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 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

14.69%

11.67%

-3.74%

140.70%

Revenue Growth (Y-O-Y)

2.70%

6.64%

9.85%

9.20%

Earnings Reaction

3.16%

-0.58%

-11.28%

-6.35%

Time Warner Cable has seen 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 = Weak 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

11.18%

12.85%

22.20%

15.11%

13.42%

Time Warner Cable has been a poor 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’s battle with CBS is now being mediated by the FCC. The stock has been trending higher but is now pulling-back a bit in an attempt to find value. Over the last four quarters, earnings and revenues have been rising, however, markets have had mixed feelings about the company. Relative to its peers and sector, Time Warner Cable has been a poor year-to-date performer. WAIT AND SEE what Time Warner Cable does this coming quarter.

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