Is Time Warner Enticing After Recent Headlines?

With shares of Time Warner (NYSE:TWX) trading around $69, 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 is reported to be in talks to purchase a large stake that’s worth as much as $1 billion in the media empire Vice Media. Once a publication that was aimed at just hipsters, Vice has grown into a huge media conglomerate. It now includes a record label, ad agency, and a show on HBO. The magazine by itself now accounts for fewer than 5 percentof the revenue of the company, which for the most part is dependent upon content that is sponsored on its three channels online. Vice has received attention for a provocative mix of stunt journalism and content such as sending Dennis Rodman, the former star basketball player, to North Korea. The brand has become hugely popular with kids today and with companies that are hungry for the younger consumer, as Time Warner is. The possible stake by Time Warner is expected to put a value on Vice of more than $2.2 billion, which is 50 percent more than its value last year, when a piece was purchased by Rupert Murdoch.

T = Technicals on the Stock Chart Are Strong

Time Warner stock has been moving higher over the past couple of years. The stock is currently trading near all-time highs and looks poised to continue. 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 above its rising key averages, which signals 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

20.03%

50%

48%

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

July Options

Flat

Average

August Options

Flat

Average

As of Tuesday, 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.