With shares of Time Warner (NYSE:TWX) trading around $60, 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 and premium pay and basic tier television services and digital media properties. Film and TV Entertainment consists of feature film, television, home video, and videogame 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.
T = Technicals on the Stock Chart are Strong
Time Warner stock has just about tripled in price since early 2009. Currently, the stock is trading near a multi-year resistance level but any successful clearance of this level can send it soaring 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 is trading slightly above its rising key averages which signal neutral to bullish price action in the near-term.
(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 | 22% | 56% | 52% |
What does this mean? This means that investors or traders are buying a significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.
| Put IV Skew | Call IV Skew | |
| June Options | Flat | Average |
| July 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 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’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 Q1 | 2012 Q4 | 2012 Q3 | 2012 Q2 | |
| Earnings Growth (Y-O-Y) | 27.12% | 57.94% | 10.26% | -25.42% |
| Revenue Growth (Y-O-Y) | -0.57% | -0.35% | -3.20% | -4.07% |
| Earnings Reaction | -0.5% | 4.1% | 4.17% | 1.22% |
Time Warner has seen increasing earnings and decreasing revenue figures over the last four quarters. From these figures, the markets have generally been pleased with Time Warner’s recent earnings announcements.
P = Average Relative Performance Versus Peers and Sector
How has Time Warner stock done relative to its peers, News Corporation (NASDAQ:NWS), Walt Disney (NYSE:DIS), Comcast (NASDAQ:CMCSA), and sector?
| Time Warner | News Corp. | Walt Disney | Comcast | Sector | |
| Year-to-Date Return | 25.44% | 27.36% | 33.60% | 11.83% | 19.85% |
Time Warner has been an average performer, year-to-date.
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Time Warner provides media and entertainment through a variety of mediums to consumers and businesses all around the world. The stock has tripled its prices in the last four years but is currently trading near a multi-year selling price level. Earnings have been increasing while revenue has decreased 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. Look for Time Warner to OUTPERFORM.
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