News Corp Stock To Trade Higher Post Fiscal Q3 Release?

News Corp (NASDAQ: NWSA), a  global, diversified media and information services company, is scheduled to report its fiscal third-quarter results on Thursday, May 6. We expect NWSA to likely beat the revenue and earnings expectations, driven by the positive momentum of Digital Real Estate Services, Book Publishing, and Dow Jones in the fiscal first half of 2021. Collectively, these segments generate EBITDA growth of close to 40% of the total company. Going forward, we expect the company to benefit from the growth momentum and show sequentially improving sales and profit trends in the upcoming Q3 as well.

Our forecast indicates that NWSA’s valuation is $27 per share, which is 6% higher than the current market price of $26. Look at our interactive dashboard analysis on NWSA’s pre-earnings: What To Expect in Q3? for more details.

(1) Revenues to be slightly ahead of consensus estimates

Trefis estimates NWSA’s Q3 2021 revenues to be around $2.23 Bil, slightly ahead of the consensus estimate of $2.19 Bil. In the fiscal first half, NWSA’s total revenue declined 6% y-o-y to $4.5 billion, which was largely due to the sale of News America marketing in Q4 fiscal 2020 (year ended June 2020). In addition, total segment EBITDA was $765 million, up 33% year-over-year, reflecting strong performances across all of its key reportable segments (except News Media), driven by a combination of improved operating trends and cost reductions.

News Corp has been on an acquisition spree in late March, bringing Investor’s Business Daily (IBD, which operates the Investors.com website) and the Books and Media segment of HMH (Houghton Mifflin Harcourt) into the fold. The profitable, high margin and rapidly growing digital-first financial news business of IBD will expand Dow Jones’ offering. In fact, IBD’s revenue base is almost entirely digital, representing nearly 100,000 digital subscribers across its platforms, with little overlap to Dow Jones’s existing subscriber base. It should be noted that Dow Jones is home to The Wall Street Journal, MarketWatch, and Barron’s, among other publications, products, and news sites.

2) EPS expected to be well ahead of consensus estimates

NWSA’s Q3 2021 earnings per share (EPS) is expected to be $0.06 per Trefis analysis, well ahead of the consensus estimate of $0.04. In the fiscal first half, the company’s net income was $308 million, compared to a loss of $108 million in the prior year. During this period, NWSA reported diluted earnings per share of $0.45, as compared to -$0.24 in the prior year. Looking ahead, cost declines in the second half are expected to moderate from the first half rate, as the company plans to lap some Covid-19 saving initiatives and see closure or digital transition of some of its newspapers in Australia in Q4.

For the full year, we expect NWSA’s net margin to grow to reach 3.4% in fiscal 2021. This coupled with a marginal fall in revenues, could lead to a rise in net income to $0.3 billion in fiscal 2021. All this, resulting in a possible EPS increase from a loss of $2.16 in fiscal 2020 to $0.52 in fiscal 2021.

(3) Stock price estimate higher than the current market price

Going by our NWSA valuation, with an EPS estimate of 52 cents and P/E multiple of around 52x in fiscal 2021, this translates into a price of $27, which is 6% higher than the current market price of roughly $26.

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