Media Entertainment Stocks

News Corporation Valuation – November 2015 Update $NWSA

Benjamin 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 10 Most Undervalued Companies for the Defensive Investor – October 2015.  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 stock analysis showing a specific look at how News Corporation (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 is focused on creating and distributing content to consumers and businesses throughout the world. The Company operates through six segments: News and Information Services; Book Publishing; Digital Real Estate Services; Cable Network Programming; Digital Education, and Other. The Company comprises businesses across a range of media, including news and information services, book publishing, digital real estate services, cable network programming in Australia, digital education and pay-television distribution in Australia, that are distributed under brands, including the Wall Street Journal, Dow Jones, the Australian, Herald Sun, the Sun, the Times, HarperCollins Publishers, FOX SPORTS Australia, realestate.com.au, realtor.com and Foxtel. The Company also owns around 50% stake in Foxtel, the pay-television provider in Australia, which is accounted for as an equity investment.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of NWSA – November 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $8,959,421,107 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.84 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 1933.33% Pass
6. Moderate PEmg Ratio PEmg < 20 354.46 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.75 Pass
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.84 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 Pass
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

NWSA value Chart November 2015

EPSmg $0.04
MG Growth Estimate 15.00%
MG Value $1.67
Opinion Overvalued
MG Value based on 3% Growth $0.63
MG Value based on 0% Growth $0.37
Market Implied Growth Rate 172.98%
Current Price $15.36
% of Intrinsic Value 920.68%

News Corporation does not qualify for either the Enterprising Investor or the more conservative Defensive Investor.  The Defensive Investor is concerned with the short history in its most recent business structure, and the high PEmg ratio.  The Enterprising Investor is concerned by the insufficient earnings stability over the last five years and the lack of dividends.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time or proceed with a cautious speculative attitude.

As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from a loss of $1.19 in 2012 to an estimated gain of $0.04 for 2016.  This level of demonstrated earnings growth does not support the market’s implied estimate of 173% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

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 Corporation (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.

Stage 3: Information for Further Research

NWSA Charts November 2015

Net Current Asset Value (NCAV) $1.42
Graham Number $14.58
PEmg 354.46
Current Ratio 1.84
PB Ratio 0.75
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

 

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Most Recent Balance Sheet Figures

Total Current Assets $3,975,000,000
Total Current Liabilities $2,155,000,000
Long-Term Debt $0
Total Assets $15,093,000,000
Intangible Assets $5,305,000,000
Total Liabilities $3,148,000,000
Shares Outstanding (Diluted Average) 582,500,000

Earnings Per Share History

Next Fiscal Year Estimate $0.46
Jun15 -$0.26
Jun14 $0.41
Jun13 $0.87
Jun12 -$3.58

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $0.04
Jun15 -$0.28
Jun14 -$0.35
Jun13 -$0.66
Jun12 -$1.19

Recommended Reading:

Other ModernGraham posts about the company

27 Companies in the Spotlight This Week – 11/8/14
News Corp Annual Valuation – 2014 $NWSA

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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