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NEW YORK – BTIG analyst Richard Greenfield said Friday that Rupert Murdoch’s News Corp. has upside to its stock price and that the entertainment conglomerate must consistently buy back stock and avoid major acquisitions to rebuild investor confidence following the phone hacking scandal.
News Corp. is “an inexpensive stock, particularly when put in the context of its double digit earnings growth,” he wrote in a report.
“The only way for News Corp. to achieve our $24 price target is by consistently buying back stock and simply not making poor return on investment multibillion dollar acquisitions – it is all about restoring investor confidence day by day.”
Greenfield also added: “We believe this is the path management will follow.”
The title of his report was “Restoring Faith in Rupert and Co., Day by Day, Share by Share.”
Investors continue to “worry about the “unknown” impact of the continuing investigation into the News of the World phone hacking scandal,” and there is “no way to assess [the] ultimate impact,” Greenfield said. But the analyst said he has seen no evidence of new damage to-date. “Importantly, News Corp.’s operating businesses have not been impacted by the NOTW events (beyond the closure of NOTW itself). Even inside the U.K., we have not seen major brands/advertisers abandon News International’s remaining U.K. newspapers,” Greenfield said.
With News Corp. recently ending its bid to take full control of U.K. pay TV operator BSkyB, Wall Street has been wondering how the media giant will use its cash and free cash flow, which Greenfield estimated at $3.5 billion-$4.0 billion annually. He called a $5 billion buyback each of the next two years “quite achievable.”
According to regulatory filings, News Corp. started buying back stock under a $5 billion authorization this week. It has bought 14.5 million shares for $242 million over four days.
Greenfield also discussed the acquisitions outlook. “Investors are concerned that the company will find a way to destroy shareholder value through large-scale, non-core acquisitions, such as something on the scale of Dow Jones,” he wrote and predicted that the company would “likely make acquisitions to absorb a portion of that [cash] capacity.”
But he argued that management realizes “that they are better at building than buying – as is most of the media sector, which spends too much time listening to investment bankers who try to excite them with strategic/”growth” acquisitions.” As a result, he predicted that News Corp. would “shy away from multi-billion acquisitions in the next couple of years.”
As of 10:40am ET, News Corp. shares were down 0.7 percent at $16.07.
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