Buy, Sell Or Hold News Corp at $8?

by Trefis Team
News Corp
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News Corp‘s (NASDAQ: NWSA) stock has declined more than 40% since the beginning of this year (through April 16), compared to a 15% decline for the broader S&P 500. NWSA stock is likely to continue to underperform the market and remain around the current level of $8.50. In fact, the stock is down 35% compared to where it was at the end of fiscal 2017 (fiscal year ending June), almost 3 years ago. Our dashboard, ‘What Factors Drove -35% Change In News Corp’s Stock Between 2017 And Now?‘ provides the key numbers behind our thinking, and we explain more below.

The stock price increased only slightly from $13.08 at the end of fiscal 2017 to $13.26 at the end of fiscal 2019, despite strong revenue and earnings growth. During this period, the company saw a 24% growth in News Corp’s revenues led by growth in the Subscription Video Services and Digital Real Estate Services segments. Moreover, the company’s net income margin increased sharply from -9.1% in fiscal 2017 to 1.5% in fiscal 2019, primarily due to lower equity losses of affiliates resulting from the absence of the write-down of the company’s investment in Foxtel. Also, there were lower impairment and restructuring charges related to the impairment of intangible assets at the News America Marketing, and at the FOX SPORTS Australia reporting unit. In addition, the company’s earnings grew from -$1.27 per share in fiscal 2017 to 27 cents per share in fiscal 2019, as the number of shares outstanding also declined gradually. Due to the earnings loss reported by the company in FY 2017 and 2018, News Corp’s P/E multiple was negative (which does not hold any significance). However, the company’s P/E multiple grew to 49.1 in fiscal 2019. It should be noted that the P/E is down to about 33x now, given the volatility of the current situation, which reflects a 33% decrease in the P/E multiple since June 2019.

How Is Coronavirus Impacting News Corp’s Stock?

News Corp Australia is seeing its advertising market collapse due to the coronavirus pandemic. Several independently owned regional papers saw their revenue from advertising dry up overnight, which might even lead them to stop printing until the end of this fiscal year. In addition, News Corp also expects cancellation or delay of sports events for which it has broadcast rights to hit subscription revenue due to COVID-19. We believe News Corp’s upcoming Q3 fiscal 2o20 results will confirm the hit to its revenue. It is also likely to accompany a lower Q4 and fiscal 2020 guidance.

News Corp’s stock is down by about 38% since January 31 after the World Health Organization (WHO) declared a global health emergency in light of the spread of coronavirus. However, during the same period, the S&P 500 index saw a decline of about 15%. News Corp’s stock has performed worse than the broader market during this crisis so far. If there are signs of containment of the virus around the Q3 earnings announcement, there is a possibility of a healthy upside for the stock. On the contrary, in the absence of any clear signs of virus containment by the end of May, the stock could hover around the levels of $7-$8.

View our dashboard analysis Coronavirus Trends Across Countries, And What It Means For The U.S. for the current rate of coronavirus spread in the U.S. and forecasts on where it could be headed, based on comparison with other countries. Our dashboard -28% Coronavirus crash vs 4 Historic crashes builds a more complete macro picture of historic crashes and how the sell-off during early March compares.

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