Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. Â This isÂ best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another companyÂ or by reviewing theÂ 10 Stocks for Using A Benjamin Graham Value Investing Strategy – FebruaryÂ 2017.Â By using theÂ ModernGraham methodÂ one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries. Â What follows is a stock analysis showing a specific look at how News Corp (NWSA)Â fares in theÂ ModernGraham valuation model.
Company ProfileÂ (obtained fromÂ 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.
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. Â In addition,Â here is a post detailing what can be found within each individual company’s valuation.
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Downloadable PDF version of this valuation:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|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
|MG Growth Estimate||15.00%|
|MG Value based on 3% Growth||$0.11|
|MG Value based on 0% Growth||$0.07|
|Market Implied Growth Rate||848.79%|
|% 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|
|Number of Consecutive Years of Dividend Growth||2|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
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|
|Shares Outstanding (Diluted Average)||581,400,000|
Earnings Per Share History
|Next Fiscal Year Estimate||-$0.40|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$0.01|
Other ModernGraham posts about the company
|5 Speculative and Overvalued Companies to Avoid â€“ November 2015|
|News Corporation Valuation â€“ November 2015 Update $NWSA|
|27 Companies in the Spotlight This Week â€“ 11/8/14|
|News Corp Annual Valuation â€“ 2014 $NWSA|
Other ModernGraham posts about related companies
The author did not hold aÂ position in any company mentioned in this articleÂ at the time of publication and had no intention of changing that position within the next 72 hours. Â See my current holdings here. Â This article is not investment advice; any reader should speak to aÂ registeredÂ investment adviser prior to making any investment decisions. Â ModernGraham is not affiliated with the company in any manner. Â Please be sure to review our detailed disclaimer.