What Will Time Warner Do Post-Earnings?

With shares of Time Warner (NYSE:TWX) trading around $63, is TWX 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 is a media and entertainment company. The company operates in three reporting segments: Networks, Film, and TV Entertainment and Publishing. Networks consist of television networks, premium pay, basic-tier television services, and digital media properties. Film and TV Entertainment consists of feature film, television, home video, and video game production and distribution, while Publishing consists of magazine publishing. Through its segments, Time Warner is able to move audiences around the world. With such a large and growing audience, look for Time Warner to continue to drive profits through its media and entertainment.

Time Warner today reported financial results for its fourth-quarter and full-year ended December 31, 2013. Chair and Chief Executive Officer Jeff Bewkes said that, “We had another very successful year in 2013, with Turner, Home Box Office and Warner Bros. all posting record profits while also investing for future growth. We grew Adjusted Operating Income by 8 percent and Adjusted EPS by 16 percent — our fifth consecutive year of double-digit Adjusted EPS growth.”

T = Technicals on the Stock Chart Are Mixed

Time Warner stock has been moving higher over the last couple of years. However, the stock is currently trading sideways and may need time to stabilize. 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 is trading below its rising key averages which signal neutral to bearish price action in the near-term.

TWX

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Time Warner options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Time Warner options

25.19%

70%

68%

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

March Options

Steep

Average

April Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish 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 bearish 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’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Time Warner look like and more importantly, how did the markets like these numbers?

2013 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

-7.63%

50.00%

92.86%

27.12%

Revenue Growth (Y-O-Y)

4.91%

0.20%

10.25%

-0.57%

Earnings Reaction

0.87%*

-0.79%

-0.37%

-0.50%

Time Warner has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with Time Warner’s recent earnings announcements.

* As of this writing

P = Average Relative Performance Versus Peers and Sector

How has Time Warner stock done relative to its peers, News Corp (NASDAQ:NWS), Walt Disney (NYSE:DIS), Comcast (NASDAQ:CMCSA), and sector?

Time Warner

News Corp

Walt Disney

Comcast

Sector

Year-to-Date Return

-9.62%

-13.70%

-6.61%

2.80%

-3.47%

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

Conclusion

Time Warner provides media and entertainment through a variety of mediums to consumers and businesses all around the world. The company today reported financial results for its fourth-quarter and full year ended December 31, 2013. The stock has been moving higher, but is currently trading sideways. Earnings and revenue figures have been increasing over the last four quarters, which has kept investors happy. Relative to its strong peers and sector, Time Warner has been an average year-to-date performer. WAIT AND SEE what Time Warner does this upcoming quarter.

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