Analyst Calls News Corp. His Top Stock Pick, Says 'Believers Will Be Rewarded' This Year

NEW YORK - If News Corp. president, COO and deputy chairman Chase Carey can deliver, "believers will be rewarded" this year, Davenport & Co. analyst Michael Morris said in a report Friday that called the conglomerate stock his top pick in the entertainment industry.

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In the report, entitled "Time to Re-Discover the Unrealized Value at News Corp.," he maintained his "buy" rating on the stock with a $24 price target.

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A stock discount due to the ownership control of chairman and CEO Rupert Murdoch, who turns 81 on Sunday, has historically kept a lid on what is a "compelling sum-of-the-parts valuation" for News Corp., "but we see reasons that investors will be rewarded this year," Morris argued. "In 2012 we see several of the best components of other media companies all realized at News Corp. - CBS’s retransmission growth, Disney’s Comcast affiliate renegotiation, Discovery’s international growth, Viacom’s share repurchase - at a price that we believe significantly under-values the company’s operating assets and investments."

Murdoch's right-hand man Carey has played an even more prominent role at News Corp. since the phone hacking scandal re-erupted, and Morris highlighted that Carey recently called the company's stock "woefully undervalued." He said Carey sounds like he has a plan to address this by maximizing the performance of all business units and rationalizing the value of the company’s unconsolidated assets.

"Investors like Mr. Carey, but the current share price reflects a lack of confidence in his ability to achieve those goals," said Morris. "News Corp. trades at a 26 percent discount to its peers despite an above-average growth profile. This inconsistency and our confidence in Mr. Carey’s ability to execute his plan make News Corp. our top pick."

Morris also drew a comparison to popular cable network investment Discovery Communications. "You like Discovery Communications at this price? You should love News Corp.," he wrote. "Discovery is a great company with great management and growth...[But] News Corp.’s cable assets are bigger and growing at a similar pace."

And News Corp. is better positioned for U.S. affiliate fee growth, "particularly given the must-carry power of Fox News - don’t let ratings fluctuations fool you, no distributor will drop Fox News - while international growth is keeping pace with Discovery," Morris said.