Will News Corp. Post Higher Prices?

With shares of News Corp. (NASDAQ:NWSA) trading around $31, 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 global media company that operates in six segments: Cable Network Programming; Filmed Entertainment; Television; Direct Broadcast Satellite Television; Publishing; and Other. The company is 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. News Corp. 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.

T = Technicals on the Stock Chart are Strong

News Corp. stock has witnessed an explosive run extending back to early 2009. The stock is now resting a bit as it digests gains from the first half of this year. 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 to bullish price action in the near-term.

NWSA

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(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

28.43%

96%

91%

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

Flat

Average

August Options

Flat

Average

As of today, there is an 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 very significant amount of call and put option contracts and are leaning neutral to bullish 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 optimistic about News Corp.’s recent earnings announcements.

P = Average Relative Performance Versus Peers and Sector

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

News Corp.

Viacom

Time Warner

Walt Disney

Sector

Year-to-Date Return

23.21%

23.62%

18.48%

25.51%

23.31%

News Corp. has been an average performer, year-to-date.

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Conclusion

News Corp. provides highly sought entertainment and information through a wide range of mediums to interested consumers and companies worldwide. The stock has been on a surge higher, in recent years, but is now digesting gains from the first half of this year. Over the last four quarters, investors have been optimistic about the company as earnings and revenue figures have been rising. Relative to its strong peers and sector, News Corp. has been a year-to-date average performer. Look for News Corp. to continue to OUTPERFORM.

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