The last time I wrote about trading the options of Time Warner Inc. (NYSE:TWX) was on February 5 when I said the Time in Ripe for Bull Call Spreads. I recommended bull call spreads on the TWX Apr 2014 65.000 call and the TWX Apr 2014 67.500 call in a cautiously bullish move contingent upon Time Warner’s strong performance in the first quarter results. Time Warner delivered healthy first quarter results to lay a foundation for strong earnings in the coming quarters.
Time Warner with its market capitalization of $72.49B is a media and entertainment company. The Company operates in three reporting segments: Networks, Film and TV Entertainment and Publishing.
Upside So Far
As at February when I was cautiously bullish on Time Warner, the company was trading at $62.20 per share and the stock has gained 32.94% by today to surprise me beyond expectations. The bullish trend is still waxing very strong and Time Warner is roaring forward with impressive gains today even has it reports an impressive (screenshot below) 16.42% to $82.67 per share as at 12:56PM EDT.
Why Shares of Time Warner Popped Today
Shares of Time Warner popped today when it rejected an unsolicited proposal from Twenty-First Century Fox (NASDAQ:FOXA) after consulting with its financial and legal advisers. News has it that Twenty-First Century Fox had proposed to acquire Time Warner in a $80 billion deal valuing Time Warner at $84 per share. In addition, Twenty-Century Fox is also interested in a combination of 1,531 non-voting common stock shares at $32.42 in cash.
The fact that Twenty-First Century Fox is interested in buying Time Warner at $80 per share proves a strong point that Time Warner is undervalued at its current trading price. Time Warner’s rejection of the bid proves a stronger point that its management strongly believes that the company is undervalued.
More Reasons to Stay Bullish on Time Warner
The bullish reasons I propounded on Time Warner in February still remains strong as ever as the company continues to move strategically to increase its global reach. Time Warner’s move into China drives home the statement by Jeff Bewkes, Chairman and CEO that
“Increasing our global presence is one of Time Warner’s strategic priorities and China is one of the most attractive territories in which we operate, but it is complex.”
Another reason to stay bullish on the company is the serious expansion into the digital landscape in order to enable consumers enjoys contents on more devices. For instance, the company has expanded the reach of HBO Go streaming to mobile devices. The company’s earlier acquisition of Flixster in order to offer video on demand to its customers and the launch of the UltraViolet digital movie technology will continue to drive revenue growth for the company.
How to Trade TWX Options
It is hard not to stay bullish on Time Warner if you take the strength of its bullish run into consideration. I have migrated from the camp of those that are cautiously bullish on Time Warner, I am now fully bullish on the company, and I recommend call options. The company has consistently delivered on earnings in the last 20 quarters and I strongly believe that we will not be disappointed when Time Warner delivers Q2 earnings of August 6. I have a $100 price target on the stock by January 2015 and I recommend buying the TWX Jan 2015 85.000 call (TWX150117C00085000) with a bid of $5.00.
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