Can News Corp. See a Turnaround?

With shares of News Corp. (NYSE: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.

Lex Fenwick, the Chief Executive of News Corp’s Dow Jones & Co. unit, has left the company after two years in the job, News Corp said late Tuesday. Mr. Fenwick is succeeded on an interim basis by William Lewis, a veteran journalist currently Chief Creative Officer for News Corp, while a search for a permanent CEO is under way, the company said. Mr. Fenwick, whose resignation is effective immediately, wasn’t available for comment. Dow Jones is the publisher of the Wall Street Journal and Dow Jones Newswires, as well as publications including Barron’s. Mr. Fenwick, who came to Dow Jones after a long career at Bloomberg LP, had focused on expanding the company’s institutional business.

T = Technicals on the Stock Chart Are Weak

News Corp. stock has been trading sideways over the last couple of months. The stock is currently pulling back and may need time to stabilize before heading higher. 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 rising 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

26.91%

93%

90%

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

February Options

Steep

Average

March 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 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

N/A

221.05%

140.48%

235.71%

Revenue Growth (Y-O-Y)

-3.00%

13.54%

5.01%

2.22%

Earnings Reaction

-1.54%

4.48%

-2.33%

1.60%

News Corp. has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have had conflicting feelings about 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

-7.49%

-4.46%

-3.40%

-3.75%

-3.77%

News Corp. has been a poor relative performer, 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’s Chief Executive Lex Fenwick, has left the company after two years in the job. The stock has been trading sideways over the last couple of months and is currently pulling back. Over the last four quarters, earnings and revenues have been on the rise. However, investors have had mixed feelings about recent earnings announcements. Relative to its peers and sector, News Corp. has been a weak year-to-date performer. WAIT AND SEE what News Corp. does this quarter.

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