Do Recent Profits Support a Move Higher in News Corp.?

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.

A filing shows that the publishing company, News Corp., recently made a profit, which is a turn around from last year’s loss. The company under chairman Rupert Murdoch split this off from the rest of his entertainment business in June. News Corp. made a profit of $506 million ending in June, which is a good boost from the loss of $2.08 billion a year. The profit was 87 cents per share this year while the loss was $3.58 the year before. The loss that had occurred the year before could mainly be attributed to a non-cash charge of $2.8 billion. This was mainly due to the Australian business.

T = Technicals on the Stock Chart Are Mixed

News Corp. stock has been seeing positive progress after announcing a spin-off of its entertainment segment. The stock is currently pulling-back so it may need time to consolidate. 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 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

28.43%

33%

31%

What does this mean? This means that investors or traders are buying a small 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 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 small 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 Q2

2013 Q1

2012 Q4

2012 Q3

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 = 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

4.18%

41.87%

36.23%

5.12%

21.37%

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. It is being reported that the company recently made a profit which is a turn around from last year, signaling signs of improvement. The stock has seen progress but is now pulling-back as markets book gains. Over the last four quarters, earnings and revenues have been on the rise which has left investors optimistic about 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 quarter.

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