News Corp Quarterly Better Than Expected

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This story features NEWS CORPORATION.
For more info SHARE ANALYSIS: NWS
The company is included in ASX200, ASX300 and ALL-ORDS

By Chris Shaw

Despite dealing with a slowing US economy media conglomerate News Corporation ((NWS)) has delivered a strong first quarter result, with earnings coming in slightly ahead of consensus forecasts.

Earnings per share (EPS) was US23c against consensus of US22c, with solid contributions from a number of divisions including Sky Italia, Cable and Newspapers, but as Merrill Lynch notes it was the film division that delivered the best performance.

ABN Amro points out the Fox Interactive Media division was a little weaker than expected, but with performance improving over the last month or so the broker sees scope for this division to still meet full year expectations.

Guidance for full year earnings of growth in the low teens has been maintained following the quarterly result but in the broker’s view the risk remains to the upside, though to some extent this will depend on how the US economy will hold up in coming months.

Deutsche Bank remains positive and estimates the company will generate EPS growth of more than 45% over the next two years, so in its view the stock offers good value at current levels.

GSJB Were agrees and estimates a cumulative annual growth rate in earnings of 16% through to FY10 is likely, which combined with the stock trading at a 17% discount to the broker’s sum-of-the-parts valuation of $28.79 shows the value on offer.

According to Merrill Lynch the shares are trading on a P/E (price to earnings ratio) of less than 18x for 2008 and on an EBITDA (earnings before interest, tax, depreciation and amortisation) multiple of 8x, so it also sees the stock as cheap.

Deutsche Bank notes there is also relative value on offer in the stock at current levels, as the shares at current levels are on an EV/EBITDA multiple of 6.8x for 2008, which is below peer levels of 7.2-8.1x.

Little surprise then the stock scores an overwhelming majority of Buy recommendations, the FNArena database showing eight Buys and only Aspect Huntley at Accumulate (one notch below Buy). The average price target on the stock is $32.70, down from $33.75 prior to the quarterly thanks largely to the translation impact of a stronger Australian dollar.

Shares in News Corporation today are slightly stronger and as at 12.45pm were up 12c at $23.92.

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