Have Times Changed For News 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. was a diversified global media company that operates in six segments: Cable Network Programming; Filmed Entertainment; Television; Direct Broadcast Satellite Television; Publishing; and Other. The company was involved in programming distribution through cable television systems and direct broadcast satellite operators; live-action and animated motion pictures distribution and licensing; operation of broadcast television stations and the broadcasting of network programming and in direct broadcast satellite business through its subsidiary, SKY Italia. However, News Corp. has officially split.

The entertainment arm of the company is now known as 21st Century Fox (NASDAQ:FOXA) while the publishing arm will keep 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. The company distributes information and entertainment through just about every medium possible which reinforces a powerful presence. 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 engagement.

T = Technicals on the Stock Chart are Weak

News Corp. stock was on a powerful path towards higher prices, until yesterday. The spinoff news has sent the stock to lose just about half of its price. 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 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

38.74%

96%

95%

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

Put IV Skew

Call IV Skew

July Options

Steep

Average

August Options

Steep

Average

As of today, there is an 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 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 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 pleased with News Corp.’s recent earnings announcements.

P = Weak Relative Performance Versus Peers and Sector

How has News Corp. stock done relative to its peers, Time Warner (NYSE:TWX), Viacom (NASDAQ:VIA), Walt Disney (NYSE:DIS), and sector?

News Corp.

Time Warner

Viacom

Walt Disney

Sector

Year-to-Date Return

-41.40%

22.89%

26.87%

29.44%

12.54%

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

Conclusion

News Corp. will not only engage in the publishing business as it has announced a spinoff of the entertainment side of the business. The stock was on a strong run towards higher prices. However, its stock price has been cut in half yesterday. Over the last four quarters, earnings and revenue figures have been on the rise which has pleased investors in the company. Relative to its peers and sector, News Corp. has been a weak year-to-date performer. WAIT AND SEE what News Corp. does in coming quarters.

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