Media Entertainment Stocks

News Corp Valuation – February 2017 $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 Stocks for Using A Benjamin Graham Value Investing Strategy – February 2017.  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 Corp (NWSA) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): News Corporation is a global diversified media and information services company focused on creating and distributing content to consumers and businesses throughout the world. The Company’s operations are organized into five segments: News and Information Services; Book Publishing; Digital Real Estate Services; Cable Network Programming, and Other. The Company’s News and Information Services segment consists primarily of Dow Jones, News Corp Australia (which includes News Limited and its subsidiaries), News UK, the New York Post and News America Marketing. Its Book Publishing segment consists of HarperCollins Publishers (together with its subsidiaries and affiliates, HarperCollins), which is a consumer book publisher. Its Digital Real Estate Services segment consists of its interest in REA Group Limited (REA Group), and its interest in Move, Inc. (Move). The Company’s Cable Network Programming segment consists of FOX SPORTS Australia, a sports programming provider in Australia.

NWSA Chart

NWSA data by YCharts

[level-free]
To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

Learn More About Premium Membership

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of NWSA – February 2017

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 $8,221,672,008 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.54 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 -1296.67% Fail
6. Moderate PEmg Ratio PEmg < 20 1,706.09 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.69 Pass
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 1.54 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.21 Pass
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $0.01
MG Growth Estimate 15.00%
MG Value $0.30
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $0.11
MG Value based on 0% Growth $0.07
Market Implied Growth Rate 848.79%
Current Price $13.08
% of Intrinsic Value 4431.39%

News Corp is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, the poor dividend history, and the high PEmg ratio. The Enterprising Investor is only concerned with the lack of earnings stability over the last five years. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $-0.43 in 2013 to an estimated $0.01 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 848.79% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into News Corp revealed the company was trading above its Graham Number of $0. The company pays a dividend of $0.2 per share, for a yield of 1.5% Its PEmg (price over earnings per share – ModernGraham) was 1706.09, which was above the industry average of 39.27. Finally, the company was trading above its Net Current Asset Value (NCAV) of $0.03.

News Corp receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $0.03
Graham Number $0.00
PEmg 1,706.09
Current Ratio 1.54
PB Ratio 0.69
Current Dividend $0.20
Dividend Yield 1.53%
Number of Consecutive Years of Dividend Growth 2

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2016
Total Current Assets $3,591,000,000
Total Current Liabilities $2,325,000,000
Long-Term Debt $268,000,000
Total Assets $14,527,000,000
Intangible Assets $6,089,000,000
Total Liabilities $3,572,000,000
Shares Outstanding (Diluted Average) 581,400,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate -$0.40
Jun2016 $0.30
Jun2015 -$0.26
Jun2014 $0.41
Jun2013 $0.87
Jun2012 -$3.58
Jun2011 $1.17

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.01
Jun2016 -$0.01
Jun2015 -$0.20
Jun2014 -$0.19
Jun2013 -$0.43
Jun2012 -$0.88
Jun2011 $0.39

Recommended Reading:

Other ModernGraham posts about the company

5 Speculative and Overvalued Companies to Avoid – November 2015
News Corporation Valuation – November 2015 Update $NWSA
27 Companies in the Spotlight This Week – 11/8/14
News Corp Annual Valuation – 2014 $NWSA

Other ModernGraham posts about related companies

Cinemark Holdings Inc Valuation – Initial Coverage $CNK
International Speedway Corp Valuation – Initial Coverage $ISCA
Corus Entertainment Inc Valuation – Initial Coverage $TSE:CJR.B
AMC Networks Inc Valuation – December 2016 $AMCX
Charter Communications Inc Valuation – Initial Coverage $CHTR
Cineplex Inc Valuation – Initial Coverage $TSE:CGX
Twenty-First Century Fox Inc Valuation – November 2016 $FOXA
Graham Holdings Co Valuation – August 2016 $GHC
CBS Corporation Valuation – August 2016 $CBS
Twenty-First Century Fox Inc Valuation – August 2016 $FOXA

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.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Back To Top