News Corp shares tumble despite analyst upgrades
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The news: News Corp shares pared gains from Thursday, tracking losses on Wall Street, despite positive reactions on its Q2 results from analysts.
The numbers: News Corp shares were down 4.03% to $54.01 by 1:47pm AEDT. On Thursday, it was the best performer across the ASX 200 as it gained 5.77%. However, overnight stock fell 0.84% on the Nasdaq but gained 3.43% in after hours trading.
Morningstar analysts raised its fair value estimate by 8% to $26.50 as the removal of Foxtel eliminated a unit where earnings had been falling at a compound annual growth rate of 4% since FY19. The divestment also reduced capital intensity and freed up the balance sheet.
UBS retained its ‘buy’ rating on the stock but upgraded its price target top $68 from $64.50. The price target increase was due to a reduced net debt profile and a forecasted earnings per share upgrade of 4% for FY25 and 2% for FY26.
The context: On Thursday, News Corp beat analyst expectations with a 5% jump in revenue for Q2 to $3.6 billion along with a total segment EBITDA that surged 20%, driven by its real estate and Dow Jones arms.
What they said: “Without the drag of structurally challenged Foxtel, the strength of News Corp's ‘Three Pillars of Growth’ is shining through,” Morningstar analyst Brian Han said.
“Dow Jones has posted earnings growth every quarter, except one in 2022, since it began its segmental disclosure from the fourth quarter of fiscal 2020.
“Digital real estate is a dependable unit, anchoring the moaty runaway train that is 61%-owned REA Group. Book publishing is the quiet achiever where earnings are swiftly recovering back to the 'pre-Amazon warehouse scare' levels.”
The sources: Morningstar research, UBS research
