Analysts Have Little Faith in News Corp.

News Corp.’s (NWS) first quarter results for fiscal 2009 has investors thinking it would be better named Bruise Corp. The earnings and updated guidance imply that business conditions are worse than some analysts feared. Others admit they underestimated the impact of weakening macroeconomic conditions on local TV and newspaper advertising, and its falling share price is reflecting the negative sentiment.

JP Morgan analyst Imran Khan, for example, told clients that he has little confidence that News Corp. will be able to cut costs fast enough to offset declining newspaper ad revenues that were exacerbated by the foreign exchange impact. He downgraded the stock to “neutral” from “overweight” on a weaker outlook versus its peers that comes from an asset mix more vulnerable to macroeconomic pressures.

He also thinks that disappointing television results even in an election year show that this segment could continue to see challenges into fiscal 2010, producing earnings growth below its peers.

RBC Capital Markets analyst David Bank maintained his “outperform” rating but slashed his price target on News Corp. from $20 per share to $15.

He told clients that it may be tough sledding right now, but investors should remain for the long haul. The analyst sighted cable and network operations that are demonstrating earnings power despite the tough environment. Along with Fox Interactive Media, he said the company has some long-term drivers of growth on its side, while cyclical pressure should eventually abate for other businesses.

So while News Corp. may lack near-term catalysts, Mr. Bank still thinks it has upside. The stock is down more than 50% year-to-date.

Jason Bazinet at Citigroup estimated that the company faces a $400-million risk to earnings before interest and taxes from recent foreign exchange swings. As a result, he said while management’s outlook (35% of the earnings per share reduction stems from currency) is shocking, it is nonetheless plausible given the limited near-term visibility in areas like advertising and DVD sales.

He cut his price target from $18 to $14, but noted that despite the downside risk from earnings, News Corp.’s valuation remains compelling.

Barclays Capital analyst Anthony DiClemente noted that not only are Fox networks and TV station declines steepening, but DVD trends are softening going into the holiday season. He cut his price target from $11 to $9. 

The analyst also noted that News Corp. is suffering from three simultaneous ailments: An advertising businesses that faces a worsening economic cycle; secular concerns for local advertising at its Fox TV stations for example; and foreign exchange rates that create a notable headwind for next year.

He told clients:

These three trends manifested themselves in the form of much lower FY09 guidance, and ratchet concerns higher for the media group into 2009.

Comments

[jay fredric...:]

Now that the election has passed and the Dems have won, watch for the Fox News Channel to have much lower numbers, and therefore ad revenue going forward. The WSJ is a better paper since being bought by Murdoch, so the revenue at the paper should flatten out in the next 6 months once this year old recessions starts to soften.

Jay

sydneycheap.com

2008 Nov 07 06:34 PM