Can Time Warner Cable Stock Move Higher?

With shares of Time Warner Cable (NYSE:TWC) trading around $133, 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 lost 215,000 video subscribers in the fourth quarter amid competition with phone carriers and the challenge of convincing younger consumers to pay for TV. The defections brought Time Warner Cable’s customer losses for the year to about 825,000, up from 530,000 in 2012. The company added 55,000 high-speed Internet subscribers and 15,000 phone users in the fourth quarter, Chief Financial Officer Artie Minson said at an investor conference. The mounting competition for video viewers has made Time Warner Cable a potential takeover target for Charter Communications Inc. and other cable carriers looking to gain size in the industry. New York-based Time Warner Cable is the second-largest U.S. cable provider, trailing only Comcast (NASDAQ:CMCSA) Charter may unveil a $62 billion bid for Time Warner Cable as soon as this week, people with knowledge of the matter have said. The company may face competition from Comcast and Cox Communications Inc. to acquire the carrier.

T = Technicals on the Stock Chart Are Mixed

Time Warner Cable stock has been pulling back in recent times. The stock is currently trading sideways and may need time to consolidate. 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

26.77%

6%

3%

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

-1.45%

1.53%

-3.31%

1.27%

-1.49%

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 lost 215,000 video subscribers in the fourth quarter. The stock has been pulling back in recent times and is currently trading sideways. 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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