Can Time Warner Cable Break Higher?

With shares of Time Warner Cable (NYSE:TWC) trading around $132, 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 is loathed by many consumers and loved by many investors. It’s shareholders who may give incoming Chief Executive Officer Rob Marcus the will to reject a $62 billion offer for the company. Even as it has lost TV customers for almost five years, the New York-based company has delivered a total return of more than 462 percent since its spinoff from Time Warner Inc. in March 2009 — gains that will help convince shareholders not to press for a sale. The returns have followed almost $7 billion in stock buybacks and net income that’s nearly doubled on the growth of the highly profitable Internet business.

T = Technicals on the Stock Chart Are Strong

Time Warner Cable stock has seen a consistent uptrend in the last few years. The stock is currently trading sideways and may need time to stabilize 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 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

28.53%

23%

20%

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

Put IV Skew

Call IV Skew

January Options

Flat

Average

February 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 minimal 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 been pleased with Time Warner Cable’s recent earnings announcements.

P = Excellent 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

36.59%

36.51%

55.33%

32.81%

36.30%

Time Warner Cable has been a relative performance leader, 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 shareholders may give incoming Chief Executive Officer Rob Marcus the will to reject a $62 billion offer for the company. The stock has seen a consistent uptrend in the last few years and is currently trading sideways. Over the last four quarters, earnings have been mixed while revenues have been rising which has left investors happy about recent earnings announcements. Relative to its peers and sector, Time Warner Cable has been a relative year-to-date performance leader. Look for Time Warner Cable to OUTPERFORM.

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