Street paves way for News Corp.

Stock becomes old self again as investors accept Dow Jones deal

NEW YORK -- Voting shares of Rupert Murdoch's News Corp. have gained ground of late and are up year-to-date after trailing their year-end 2006 closing price late in the summer. Analysts cited the global credit crunch and the planned acquisition of Dow Jones & Co. as factors that held back the stock.

However, most Wall Street observers are bullish on the stock, with some calling it their favorite pick among sector biggies. Many point out that it is undervalued compared with the company's peers and its growth outlook, and many seem to have accepted the old-media Dow Jones deal.

"We've been bullish on News Corp's stock since 2005. While we looked smart during some of 2005 and all of 2006, the stock has traded sideways-to-down since word of News Corp's bid for Dow Jones hit the wires," Citigroup analyst Jason Bazinet said in a report before Labor Day. "Most investors don't like M&A, but particularly M&A laden with newspaper revenues."

With the Dow Jones deal agreed on, though, he predicted: "Going forward, we think investors will begin to focus -- once again -- on News Corp.'s operating results. And on that front, there are several reasons to be bullish."

Among other things, Bazinet has slightly raised his operating income projection for the firm's new fiscal year, which started in July, to $5.11 billion. He has a "buy" rating and $26 price target.

News Corp. voting shares closed 2006 at $22.21 when adjusted for stock splits and dividends. On Tuesday, they finished up 1% at $24.46.

Goldman Sachs analyst Anthony Noto also recently had bullish comments about News Corp.

"Fiscal-year 2008 will represent the seventh year of strong double-digit growth as News Corp. benefits from profit increases at four businesses," he said before Labor Day.

After Labor Day, Noto reduced his financial projections for numerous sector biggies, including News Corp., on a weakening U.S. economy. He also reduced his expectation for News Corp. stock buybacks in calendar-year 2008, predicting that "any excess cash will go towards internal investments and the announced acquisition of Dow Jones."

Banc of America Securities analyst Jonathan Jacoby has in recent notes said that News Corp. is his favorite among major media titans.

"Not only does News seem to be quite well positioned for the current environment, it is the cheapest of the large-cap conglomerates" on an enterprise value/operating cash flow basis, he said in late August, predicting the climb the stock has since seen.

In addition, Jacoby suggested that management's guidance for the new fiscal year could prove to be conservative.

He also pointed to key growth segments -- such as Fox Interactive Media, British Sky Broadcasting and News Corp.'s cable networks division -- as key contributors. They "continue to show potential to deliver upside to expectations," plus, News Corp.'s stock valuation remains "compelling," he concluded.

Jacoby recently raised his fiscal 2008 revenue estimate from $29.38 billion to $30.04 billion and his forecast for earnings before interest and taxes from $4.96 billion to $5.05 billion.

Meanwhile, Miller Tabak + Co. analyst David Joyce around Labor Day reduced his operating income estimate for fiscal-year 2008 by $100 million, citing the company's planned investment in cable networks and international TV businesses.

However, a lower tax rate and an adjustment in the timing for the closing of the swap of the conglomerate's stake in DirecTV led him to boost his profit and free cash flow estimates.

The analyst now projects 18% potential operating income growth to $5.24 billion, which would be ahead of management's guidance of low-teen-percentage gains. Joyce also predicts 22% earnings-per-share growth and 7% free cash flow growth to $3 billion in the current fiscal year.

Overall, he has maintained his "buy" rating on News Corp.'s stock with a $29 price target on its voting shares. Joyce argued that planned transactions "have diverted investors' attentions" this year, but he added that he particularly likes "the growth prospects for News Corp. versus its valuation."

Joyce predicted that the current fiscal year's results will "tell a story of a proactive media conglomerate that constantly re-energizes its portfolio to be a leader in new-media entertainment and distribution trends."

Bear Stearns analyst Spencer Wang is among the less bullish Wall Street observers on News Corp. with his "peer perform" rating.

"Although we regard valuation as fairly inexpensive, our view reflects concerns about growing competition in social networking and the synergy potential from the Dow Jones (acquisition)," he said in a recent report.

Overall though, it seems that many of the Street's analysts have become more comfortable with the future integration of the Dow Jones assets into the Murdoch empire. And the stock has followed suit.