With shares of Time Warner Cable (NYSE:TWC) trading around $136, 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.
The city of Los Angeles is suing Time Warner Cable over unpaid franchise fees, the Los Angeles Times reported Saturday. The city claims that Time Warner owes more than $9.7 million in payments, even as the company took in approximately $500 million from the city’s customers each year. The money, city officials told the publication, could have helped to ease its budget problems during the financial crisis. The $9.7 million the city is seeking is comprised of four years’ worth of unpaid fees, including approximately $2.5 million in franchise fees, as well as public, education, and governmental channel fees from 2008 and 2009, in addition to approximately $7.2 million from between 2010 and 2011.
The Los Angeles Times notes that the lawsuit comes just a few weeks after the company announced it would raise prices yet again by an average of about 6 percent per month to homes that aren’t covered by a promotional package. Those higher bills are expected to affect about 30 percent of the approximately 1.5 million subscribers in the Los Angeles area.
T = Technicals on the Stock Chart Are Mixed
Time Warner Cable stock has been coasting higher over the past several years. However, the stock is currently pulling back 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 Cable is trading between its rising key averages which signal neutral price action in the near-term.
(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 |
21.44% |
30% |
28% |
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 |
|
| April Options |
Average |
Average |
| May Options |
Average |
Average |
As of today, there is an average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts and are leaning neutral 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 Q4 |
2013 Q3 |
2013 Q2 |
2013 Q1 |
|
| Earnings Growth (Y-O-Y) |
12.5% |
-29.23% |
14.69% |
11.67% |
| Revenue Growth (Y-O-Y) |
1.68% |
2.89% |
2.7% |
6.64% |
| Earnings Reaction |
1.58% |
2.79% |
3.16% |
-0.58% |
Time Warner Cable has seen increasing earnings and 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 |
0.85% |
-3.34% |
7.23% |
10.83% |
4.89% |
Time Warner Cable has been an average 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 city of Los Angeles is suing Time Warner Cable over unpaid franchise fees. The stock has been moving higher over the past several years, but is currently pulling back. Over the last four quarters, earnings and revenues have been on the rise. However, investors have had conflicting feelings about recent earnings announcements. 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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