Analysts Raise News Corp. Price Targets After Investor Day

4:42 AM PST 05/29/2013 by Georg Szalai

"We liked what we heard" about the post-split publishing business, says one Wall Street observer, while another one writes the event was "positive versus low expectations."

Wall Street analysts on Wednesday mostly lauded Tuesday's investor day for the new News Corp., which will house the publishing assets of Rupert Murdoch's media conglomerate after a split in late June.

"We like new News Corp's long-term strategy," Wells Fargo analyst Marci Ryvicker said in the title of her report that summarized her updated views on the company. "We liked what we heard."

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Management, led by chairman Murdoch and designated CEO Robert Thomson, "succeeded in setting realistic expectations, i.e. the transformation of new News Corp. is going to take some time," Ryvicker added. "We were asked by investors if anything we heard was "surprising," and we have to say we now have a greater appreciation for the value of both Dow Jones and [education unit] Amplify."

That and other factors led her to raise her valuation for new News Corp. from $2.50 per share to $5. As a result, she also raised her price range for News Corp.'s current stock from $35-$37 to $37-$40.

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Lazard Capital Markets analyst Barton Crockett also raised his target price on News Corp. by $4 to $40.

"We viewed News Corp.'s inaugural publishing investor half-day as positive versus low expectations," he wrote. "We were surprised and impressed at the e-book growth at Harper Collins. We were excited by the competitive position and growth of TV and online real estate businesses in economically struggling Australia."

Going into more detail on the Australian business, he said News Corp.'s TV operations there look solid. "Fox Sports Australia is like the continent's ESPN with a dominant multi-year lock on major sports rights," the analyst said. "Foxtel is the country's main pay TV service. Solid growth at both despite a struggling local economy bodes well."

Addressing his key concerns for News Corp., Crockett said: "The main overhang is the ability to navigate Internet threats to traditional newspapers in Australia and the U.K."

Revenue at the company's core newspapers have been trending down amid economic and Internet head winds. "News Corp. plans to deal with this via cost-cutting and subscription growth, including higher prices for the Wall Street Journal, more sales of Dow Jones information services and more online subs at U.K. newspapers, assisted by the acquisition of exclusive soccer video highlight rights," Crockett said, suggesting that investors will keep a close eye on how things play out here.

Sanford C. Bernstein analyst Todd Juenger on Wednesday said that his "conservative sum-of-the-parts valuation suggests significant upside" for News Corp. He reiterated his "outperform" rating on News Corp.'s stock and his $40 price target.

"Management is counting on increases in subscriber revenues to more than offset declines in advertising, while continuing to simultaneously cut costs and invest in the migration to a digital future. That's a lot of things that have to go right -- some in conflict with each other, but Mr. Murdoch seems to relish the challenge -- and that's when he's historically been at his best," he said. "Nevertheless, we remain bullish on News Corp, and specifically the near-term opportunity at new News."

Juenger said he was "struck by the strong attendance -- standing room-only in a huge ballroom" at the investor day. "It was a clear sign many investors are seriously considering holding (or adding to) their new News shares," he said.

His conclusion: "The spin will present attractive upside opportunity in the near-term, during which time investors can assess new News' progress toward its hoped-for long-term goals."

News Corp. class A shares on Tuesday closed at $33.24.

Email: Georg.Szalai@thr.com
Twitter: @georgszalai
 

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