Australia | Feb 09 2007
By Chris Shaw
The FNArena database shows a sentiment reading indicator for News Corporation (NWS) of 0.8, making it one of the highest recommended stocks in the Australian market as covered by ten leading brokers and equity researchers.
The company has done its part in justifying the confidence of the market as brokers have responded positively to the company’s second quarter results, which were broadly in line with expectations and increased the confidence of securities analysts with respect to full year forecasts.
While the TV division disappointed this was no surprise, Deutsche Bank noting this was offset by strength in the Film division. UBS also pointed to the increasing contributions from Fox Interactive Media (FIM), where the company’s MySpace asset continues to perform above expectations.
Both it and Merrill Lynch see potential for the division’s revenues to double by next year, as the recent deal with Google for advertising on the site has yet to kick in with any real contribution yet revenue grew 25% quarter on quarter. Credit Suisse also expects the market to give credit for increased earnings visibility from the division as the Google deal contributions start to flow.
Merrill Lynch suggests risk for earnings remains to the upside as the lagging TV and Cable operations should be able to generate improved performance and so support the strength in FIM and Film.
Deutsche agrees, but points to another source of possible upside in that capital expenditure should fall after FY08 as the company’s current printing build-out in the US nears completion. This will increase free cash flow and supports the broker’s forecast of 12% EBIT growth through to FY10.
It also frees the way for further share buybacks, most of the brokers pointing out management has indicated this remains the best use of excess capital at the current time.
While earnings estimates are little changed following the quarterly the brokers are clearly attracted to the strong growth in earnings per share terms, as median forecasts according to Thomson One Analytics stand at US107c this year and US128c in FY08.
As noted, opinion in the FNArena database is positive as the stock is rated Buy five times and Hold once, that by Aspect Huntley.
News Corporation shares are stronger in today’s trading, as at 1.45pm the stock was up 24c at $32.42.