News Corp. hit by analyst double whammy

Price targets, forecasts slashed for media giant

NEW YORK -- News Corp. was hit with an analyst double whammy Thursday.

Pali Research analyst Richard Greenfield and Sanford Bernstein's Michael Nathanson both slashed their earnings forecasts and stock price targets for the media and entertainment giant, citing the recession's effect on its advertising businesses.

Greenfield maintained his "buy" rating on News Corp. shares, but cut his price target by $3 to $12 in a note that also called on chairman and CEO Rupert Murdoch to consider restarting stock repurchases.

Greenfield had already lowered his financial estimates for News Corp.'s fiscal year ending in June as recently as late November. "At the time, we felt our estimated 18% decline in fiscal year '09 operating income, well below management's guidance of down low-mid teens, was conservative enough," he said in a research note. "While the 89 cents (earnings per share) estimate remains well below the current consensus estimate of 96 cents, we increasingly believe our numbers are still too high."

Greenfield therefore cut his forecast to 84 cents per share, with his projection for operating income now being a 22% drop. He made most of his earnings revisions for News Corp.'s broadcast TV and newspaper units. Operating income at the rest of the conglomerate should fall 5% before a gain of more than 20% in the following fiscal year, Greenfield estimated.

Given News Corp.'s low debt load and low stock price in the single digits, the Pali analyst also called on Murdoch to restart stock buybacks. "It is hard to imagine any better use of News Corp.'s cash and balance sheet than repurchasing stock at these levels," he wrote. "A $2 billion share repurchase/tender, which is less than News Corp. will generate in free cash flow this year, at/around current stock price levels would enable News Corp. to shrink its (share) float by nearly 10% and increase fiscal 2010 earnings per share by 7% above our revised 99 cents per share estimate."

Greenfield also called on News Corp. management to extend Peter Chernin's contract as president and COO, shut down money-losing newspapers and make massive cuts at its TV stations.

Meanwhile, Bernstein's Nathanson reduced his fiscal second-quarter earnings forecast for the conglomerate largely due to cuts in the TV, newspaper and film units.

"We expect filmed entertainment profits to be impacted by disappointing theatrical releases in the quarter, like 'Australia,'" he said. "Television profits are estimated to be down 98% due to adverting weakness in TV stations and $60 million operating loss at the FOX network due to disappointing ratings and baseball results."

For the full fiscal year, Nathanson reduced his earnings per share estimate from 95 cents to 80 cents. That is based on an estimated operating income decrease of 25%.

As result, Nathanson cut his price target on the stock from $11 to $9. He rate the stock "market-perform."
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