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Larry Meyers, PDL Capital (76 clicks)
Value, special situations, long-term horizon, small-cap
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The phone hacking scandal that has been taking apart portions of News Corp.’s (NWS) empire is a pretty disgraceful thing. Certainly everyone involved deserves to be held accountable, and apologies should continue to be issued.

But this, too, shall pass. And in the long run, I don’t want to bet against Rupert Murdoch. There are a few personalities out there that you never want to bet against. Everything they touch either turns to gold or, if it doesn’t, the miscalculation fails to stick. These are people like Liberty Interactive’s (LCAPA) John Malone, Berkshire Hathaway’s (BRK.B) Warren Buffett, IAC/Interactive Corp’s (IACI) Barry Diller, CBS Corporation’s (CBS) Les Moonves, Apple’s (AAPL) Steve Jobs, or Walt Disney’s (DIS) Bob Iger. There are many other members of this exclusive group.

News Corp. is not going away. It’s a monster in cable TV, filmed entertainment, network TV, Direct Broadcast Satellite TV, publishing, newspapers, display advertising. You’ve got Chase Carey, an incredibly capable executive as COO, and Roger Ailes as Chairman of just about everything involving TV.

The current tumult will barely register a year from now. In the meantime, analysts are looking for 12.89% annualized growth over the next five years. The company produced $2.9 billion in free cash flow in FY 2010, and still put out $1.3 billion in FY 2009 during the recession. Some of the primo mutual fund managers hold large portions of the company: Dodge & Cox sits on an 8% stake and the Yacktman Funds sit on 3.2%.

The company trades at 11.5x next year’s estimates vs. 17x for Liberty Interactive (and a negative 5-year growth rate), 1.5x for Time Warner Inc. (TWC) (vs. 14% 5 year growth), 13x and 15% 5-year growth for Disney, 18x and 25% for IAC, and 13.5x and 23% for CBS. Its net margins of 9% are better than some and not as good as others. So while it may not be as attractive as its peers in some metrics, it certainly isn’t a pariah stock, either. It’s arguably undervalued with world-class management. And that includes the undefeatable Rupert Murdoch.

Source: News Corp.: Arguably Undervalued, World-Class Management