Can News Corp. Still Be a Hot Stock?

New Corp

With shares of News Corp. (NASDAQ:NWSA) trading around $14, is NWSA an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

News Corp. is a diversified media and information services company. The company now operates in five segments: News and Information Services, Cable Network Programming, Digital Real Estate Services, Book Publishing, and Other. News Corp.’s business consists of news and information services, sports programming in Australia, digital real estate services, book publishing, and pay-television distribution in Australia. Its products and services are distributed under the following brands: The Wall Street Journal, Dow Jones, Herald Sun, The Sun, The Times, HarperCollins Publishers, Fox Sports Australia, and realestate.com.au. Lastly, News Corp. is a developing provider of digital education content, assessment, and delivery services.

Just recently, the company spun off of the entertainment arm of the company, which is now known as 21st Century Fox (NASDAQ:FOXA), while the publishing arm kept the company’s name. News Corp. needs to prove that it can be profitable in its own right, as the company’s publishing businesses have struggled. As companies and consumers continue to search for entertainment and information at increasing rates, look for companies like News Corp. to see rising profits. However, it will be interesting to see what the company does to improve their publishing products.

T = Technicals on the Stock Chart are Weak

News Corp. stock was a consistent outperformer over the last several years. After the split, the stock dropped significantly, and the firm is now attempting to establish a new value for the company. Analyzing the price trend and its strength can be done using key simple moving averages.

What are the key moving averages? They are the 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, News Corp. is trading well below its key averages, which signal neutral to bearish price action in the near-term.

NWSA

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of News Corp. options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

News Corp. Options

33.65%

73%

72%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

August Options

Steep

Average

September Options

Steep

Average

As of today, there is average demand from call buyers or sellers, and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts, and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates, and what that means for News Corp.’s stock.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. The last four quarterly earnings announcement reactions can also help gauge investor sentiment on News Corp.’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for News Corp. look like, and more importantly, how did the markets like these numbers?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

221.05%

140.48%

235.71%

273.83%

Revenue Growth (Y-O-Y)

13.54%

5.01%

2.22%

3.87%

Earnings Reaction

4.48%

-2.33%

1.60%

0.21%

News Corp. has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been happy with News Corp.’s recent earnings announcements.

P = Poor Relative Performance Versus Peers and Sector

How has News Corp. stock done relative to its peers, Gannett (NYSE:GCI), The New York Times (NYSE:NYT), Pearson (NYSE:PSO), and the overall sector?

News Corp.

Gannett

The New York Times

Pearson

Sector

Year-to-Date Return

-7.59%

9.26%

20.84%

3.14%

7.26%

News Corp. has been a poor relative performer, year-to-date.

Conclusion

News Corp. is a media and information services company that was recently spun off of its very profitable entertainment segment. It will be interesting to see how the company does, without the entertainment segment boosting profits by a significant margin. The stock is now attempting to establish value after the recent spin-off. Over the last four quarters, earnings and revenue figures have been on the rise, which has resulted in happy investors. Relative to its peers and sector, News Corp. has been a poor year-to-date performer. WAIT AND SEE what News Corp. does this coming quarter.

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