Will The Hobbit Trilogy Send Time Warner Higher?

With shares of Time Warner (NYSE:TWX) trading around $66, 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 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’s Warner Bros. has spent an estimated $561 million on the Hobbit trilogy so far, making it one of the most expensive franchises to date and nearly doubling the amount spent on the Lord of the Rings trio of films. The first Hobbit movie brought in more than $1 billion, and the second is scheduled for release this December.

T = Technicals on the Stock Chart are Strong

Time Warner stock has seen positive progress in recent years but is now trading near the top-end of a multi-year range. The stock is at highs for the year but multi-year resistance may be in sight. 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 signal neutral to bullish 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

24.24%

66%

65%

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

October Options

Flat

Average

November 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 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.