News Corp Earnings Preview: What We Are Watching

News Corp (NASDAQ:NWS) will report its fiscal 2nd quarter 2012 earnings on Wednesday, and investors will keep a watchful eye on advertising trends as well as subscriber growth for News Corp’s cable networks, which we estimate contribute almost 40% of the company’s value. The company has been battling its hacking scandal for some time now, which has tarnished its image and pushed its valuation lower. Although it has regained some of this lost value, we believe there is still more upside, especially as the advertising market improves and the proportion of business directly impacted by the scandal is quite small. News Corp competes with other media conglomerates such as Disney (NYSE:DIS), Time Warner (NYSE:TWX) and CBS (NYSE:CBS).

Our price estimate for News Corp stands at $23, implying a premium of more than 15% to the current market price.

See our complete analysis for News Corp

News Corp remains very vulnerable to trends within the advertising market, which is in turn affected by overall economic conditions. There have been some encouraging economic indicators of late, such as an improved outlook for auto sales which could mean that automakers will increase their advertising spend in order to drive sales. This bodes well for media companies such as News Corp, and we expect to see some impact of this improvement in the company’s upcoming results.

We estimate that approximately one-third of News Corp’s value comes from advertising. Furthermore, it will be interesting to see whether subscription and fee rates have trended higher with the steady improvement in economic conditions. Cable subscription revenues account for roughly 30% of our price estimate for News Corp.

Additionally, share buybacks have been a factor in lifting News Corp’s stock. The company announced a 12-month, $5 billion repurchase program in mid-2011. ^[1] Any further announcements regarding the progress of the buyback in the earnings release could support the stock.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. News Corp share buyback crosses $1 billion mark, Reuters, Sept 20 2011 [↩]