Despite New Accusations News Corp.’s Stock Looks Solid

The shares of media giant News Corp (NASDAQ:NWS) have risen by about 12% since the beginning of 2012 and by about 33% since October 2011. The company suffered a blow to its reputation when its tabloid, The News Of The World, was accused of resorting to illegal reporting practices. This affected its stock price last year, which has now recovered to a great extent.

However, in the last couple of weeks new accusations have emerged one from a London police official and another from Cherie Blair, the wife of former U.K. prime minister Tony Blair, accusing News Corp. of bribing and hacking phone lines, respectively. ^{[1] [2]} However, as we have said before, the financial impact of the scandal is very minimal as publishing is something that News Corp does not rely on for the majority of its value. We estimate that the U.K newspaper business constitutes less than 5% to News Corp’s stock. News Corp competes with other media giants such as Disney (NYSE:DIS) and CBS (NYSE:CBS).

See our complete analysis for News Corp

New Corp’s recent earnings suggest that even though its newspaper business is on a decline, the cable networks and broadcasting businesses are doing well enough to compensate. ^[3] This further suggests the diminishing importance of the business hounded by the scandal. News Corp has replaced its previous Sunday tabloid in the U.K. with a new one, and is trying to rebuild its image and gain public trust.

Additionally, while the company continues with its share re-purchase program, it may look at a new similar program once the current repurchase program is complete. ^[4] Given its strength, investors are showing confidence in its stock, and the is trying to send a positive signal to the market with this buyback announcement. This will help it mitigate the negative impact of the scandal surrounding its U.K. publishing unit.

Our price estimate for News Corp stands at $23.10, implying little over 10% premium to the market price.

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1. London Police Official Accuses News Corp.’s Sun of ‘Culture of Illegal Payments’, Reuters, Feb 27 2012 [↩]
2. Tony Blair’s Wife Cherie Sues News Corp., Convicted Phone-Hacker Mulcaire, Bloomberg, Feb 23 2012 [↩]
3. Film, Cable-TV Boost News Corp. Earnings, The Wall Street Journal, Feb 9 2012 [↩]
4. News Corp. to Consider Stock Buyback, The Wall Street Journal, Feb 28 2012 [↩]