Media Entertainment Stocks

News Corp Annual Valuation – 2014 $NWSA

220px-News_Corporation.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Highest Dividend Yields Among Undervalued Companies for the Defensive Investor – October 2014.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how News Corp (NWSA) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): News Corporation is a diversified media and information services company. The Company operates in five segments: News and Information Services, Cable Network Programming, Digital Real Estate Services, Book Publishing, and Other. The Company’s business consists of range of media, including news and information services, sports programming in Australia, digital real estate services, book publishing, and pay-television (TV) distribution in Australia, that are distributed under the brands, including The Wall Street Journal, Dow Jones, Herald Sun, The Sun, The Times, HarperCollins Publishers, FOX SPORTS Australia and realestate.com.au. The Company is a developing provider of digital education content, assessment and delivery services. The Company’s business component includes News and Information Services, Cable Network Programming, Digital Real Estate Services, Book Publishing, Amplify and Foxtel. In July 2014, it completed the acquisition of Harlequin Enterprises from Torstar Corp.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 2/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 2/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – FAIL
  4. Dividend Record – currently pays a dividend – FAIL
  5. Earnings growth – EPSmg greater than 5 years ago – FAIL

Valuation Summary

Key Data:

Balance Sheet – June 2014

Current Assets $5,270,000,000
Current Liabilities $2,264,000,000
Total Debt $0
Total Assets $16,489,000,000
Intangible Assets $4,919,000,000
Total Liabilities $3,246,000,000
Outstanding Shares 580,000,000

Earnings Per Share

2014 $0.41
2013 $0.87
2012 -$3.58
2011 $1.17

Earnings Per Share – ModernGraham

2014 -$0.19
2013 -$0.43
2012 -$0.88
2011 $0.39

Dividend History
News Corp does not pay a dividend.

Conclusion:

News Corp is not suitable for either the Defensive Investor or the Enterprising Investor.  Quite simply, the company does not have a long enough stand alone history in order to satisfy either investor type’s requirements.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time.  As for a valuation, it is difficult for the ModernGraham valuation model to estimate an intrinsic value based on such a short earnings history.  In addition, the company has not yet achieved a positive EPSmg (normalized earnings), which does not help its cause.  The intrinsic value therefore cannot be found via the earnings, but may be found in the balance sheet.  It should be noted that the Net Current Asset Value of the company is $3.49, so that gives a lower limit to the intrinsic value.  Speculators should be very cautious when valuing this company.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on News Corp (NWSA)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in News Corp (NWSA) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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