Is News Corp’s Stock Overvalued At $18?

News Corp’s stock (NASDAQ: NWSA) has gained close to 34% since the beginning of November and currently stands at around $18. The company’s stock is riding higher on the optimism of vaccine trials and the U.S. Presidential election results. However, we believe that the company’s stock is overvalued and could likely see declines in the near term. It goes without saying that the coronavirus pandemic did impact the company’s performance with both the top and the bottom lines declining sharply from the year-ago period. The company had to cut short its marketing expenditures, which in turn hit its advertising revenues sharply. Consequently, News Corp’s total revenues declined 13% year-over-year (y-o-y) in 2020 so far (this includes cumulative results from FY Q3 2020, FY Q4 2020, and FY Q1 2021). It should also be noted that News Corp’s stock saw a 7% decline year-to-date as of October end.

The media company’s stock has largely underperformed the broader markets between fiscal 2018 (year ending June) and now. The company’s stock is around 14% higher than it was at the end of fiscal 2018, compared to 31% growth in the S&P. Our dashboard, What Factors Drove 14% Change in News Corp’s Stock Between 2018 and Now? provides the key numbers behind our thinking, and we explain more below.

News Corp’s stock declined 23% from around $16 in FY 2018 to around $12 in FY 2020. During this period, News Corp’s revenues were largely flat. A crucial factor that led to this drop in the company’s stock price was the markets re-valuing the company at a lower P/S multiple from 1x in FY 2018 to 0.77x in FY 2020. While the company’s P/S is higher to about 1.15x now, it could potentially see a downside closer to its historical levels.

How Is Coronavirus Impacting News Corp’s Stock?

News Corp saw its advertising market collapse due to the coronavirus pandemic as several independently owned regional papers saw their revenue from advertising dry up overnight. In addition, the media company also suffered cancellation and delay of sports events for which it already had broadcast rights, largely affecting its subscription revenue due to Covid-19.

Nonetheless, News Corp’s management has been taking necessary steps to lower variable costs and implement cost-containment strategies across its businesses with a primary focus on the News Media segment. News Corp also launched a Shared Services program to help minimize costs and favorably impact the bottom line. The company anticipates recognizing annualized cost savings of at least $100 million from this program beginning in fiscal 2022.

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