Can Time Warner Cable Move Higher After Settling Its Dispute?

With shares of Time Warner Cable (NYSE:TWC) trading around $110, 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 dispute with CBS (NYSE:CBS) has finally been settled to Time Warner’s disadvantage. The cable provider was forced to pay a significant increase in retransmission fees, although the figure was still below $2 per subscriber per month, sources told Bloomberg. Thus ends the monthlong blackout of CBS programming from Time Warner Cable. The agreement comes just in time for National Football League games — some of the most lucrative programming on television — to start broadcasting.

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 pulling-back from all-time high prices so it may need time before it gets going once again. 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 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

33.14%

90%

88%

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

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 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 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 increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have expected a little more from 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

13.12%

14.86%

24.86%

16.79%

15.31%

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 has ended to Time Warner Cable’s disadvantage. The stock has been trending higher in recent years and is now pulling-back from all-time high prices. Over the last four quarters, earnings and revenues have been rising, however, investors have expected a little more from the company. Relative to its peers and sector, Time Warner Cable has been a weak year-to-date performer. WAIT AND SEE if Time Warner Cable can stabilize at current prices.

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