Is News Corp. Poised to Head Higher?

With shares of News Corp. (NASDAQ:NWSA) trading around $17, 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-TV 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.

News Corp.  is buying Harlequin Enterprises, a publisher of novels such as Destiny’s Last Bachelor? and The Heartbreaker Prince, for C$455 million ($415 million) in cash, according to a statement today. Murdoch is purchasing Harlequin from Canada’s Torstar Corp. and will fold it into News Corp.’s HarperCollins books unit, which already has a romance imprint called Avon Romance. Harlequin was founded sixty-five years ago and grew to become the world’s biggest publisher of romance novels, which are often referred to as “bodice rippers.” The acquisition gives HarperCollins a foothold in eleven foreign countries and expertise in translations.

The deal also underscore’s Chief Executive Officer Robert Thomson’s strategy of what he calls “globalization and digitization” — the idea that News Corp. needs to sell content better around the world and online. “This is really part of our overall play in those areas,” he said in an interview. “It also signals the book business is an important part of the company.”

T = Technicals on the Stock Chart are Mixed

News Corp. stock has been trading sideways over the last couple of months. However, the stock is currently surging higher and looks set to continue this path. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? 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 between its rising key averages which signal neutral 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

26.81%

43%

40%

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

Put IV Skew

Call IV Skew

June Options

Average

Average

July Options

Average

Average

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

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions 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 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

15.16%

5.00%

221.05%

140.48%

Revenue Growth (Y-O-Y)

N/A

-3.00%

13.54%

5.01%

Earnings Reaction

8.67%

-1.54%

4.48%

-2.33%

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

P = Excellent 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 sector?

News Corp.

Gannett

The New York Times

Pearson

Sector

Year-to-Date Return

-3.94%

-7.98%

-1.32%

-17.50%

-6.68%

News Corp. has been a relative performance leader, year-to-date.

Conclusion

News Corp. is a media and information services company that has recently spun-off of its very profitable entertainment segment. The company is buying Harlequin Enterprises. The stock has been trading sideways over the last couple of months, but is currently surging higher. Over the last four quarters, earnings and revenues have been increasing, which has left investor pleased. Relative to its peers and sector, News Corp. has been a year-to-date performance leader. Look for News Corp. to OUTPERFORM.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

More from Wall St. Cheat Sheet: