Is News Corp. Ready to Move Higher?

With shares of News Corp. (NASDAQ:NWSA) trading around $16, 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. had some of its voting stock purchased by Southeastern Asset Management, the hedge fund that teamed up with Carl Icahn to oppose Michael Dell’s buyout of Dell (NASDAQ:DELL). The hedge fund bought 11.9 percent of the company’s voting stock, making it the second-largest shareholder behind Rupert Murdoch’s 39 percent stake. The stock is valued at $397 million and accounts for a 4.1 percent economic interest in the newspaper and publishing company, according to Bloomberg.

T = Technicals on the Stock Chart Are Mixed

News Corp. stock has been trending higher after the announcement of its spinoff. It looks like the stock is currently moving higher and attempting to make up lost ground. 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 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

27.20%

0%

0%

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

Put IV Skew

Call IV Skew

October Options

Flat

Average

November Options

Flat

Average

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

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 past 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 – Gannett (NYSE:GCI), The New York Times Co. (NYSE:NYT), Pearson (NYSE:PSO) — and sector?

News Corp.

Gannett

The New York Times Co.

Pearson

Sector

Year-to-Date Return

6.01%

40.87%

33.53%

4.15%

19.37%

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. A popular hedge fund has recently acquired a significant portion of the company’s voting stock. The stock has been moving higher after its recent spinoff. Over the last four quarters, earnings and revenues have been rising, 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 this coming quarter.

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