News Corp Moves Back Toward 52-Week High

There has been enough good news about News Corp in the last two days that the stock appears headed back to the level where it traded before the phone hacking scandal caused it to sell-off. The two Murdochs dodged any problems their testimonies before a Parliament commission might has caused. Cowen & Co upgraded the company’s stock to “outperform,” to some extent on the belief that the senior Murdoch may leave. Well-known Saudi billionaire and investor Prince Alwaleed bin Talal said he supported the Murdochs in their current roles. There has been concern that he might sell his shares.

News Corp shares have moved from a low last week of $15.40 to yesterday’s close of $16.42, an improvement of 7%. The stock is still shy of the $18.50 where it traded before the UK trouble. But, there are several reasons to believe that shares will rise sharply over the next few months.

The first reason the stock will rally is that so far it seems that the trouble in the UK was caused by UK-based executives, probably led by News International’s former CEO Rebekah Mary Brooks. She has already been arrested. No one has made a serious allegation that either of the Murdochs were aware of her actions. All that can be said for now is that James and Rupert created a culture within the company that caused lax moral behavior. That is shameful but not illegal.

The second reason the stock is set to move in the right direction is that the problems in the US are at this point next to nothing. The independent Dow Jones editorial oversight board said it did not find any wrong-doing among the firm’s employees. CEO Les Hinton stepped down. His decision may be based on the reason he stated. Concerns about his role in the UK have cast a shadow over his ability to run Dow Jones through what are likely to be substantial distractions. The US media businesses of News Corp are not clear of an FBI investigation about how its newspaper and TV operations collected information on subjects. However, no evidence has been released that there was anything illegal done. With each day that passes without evidence of such actions, News Corp shares are likely to rise.

The primary reason News Corp’s stock will go up is that it is a good businesses, no matter what happens to the Murdochs. Rupert is less likely to acquire money-losing businesses of which he is fond. He has done so in the past. His board will almost certainly have more leverage now that he is no longer the world’s media strong man.

News Corp’s EPS are expected to be flat in the just past quarter at $.30. The current quarter is expected to produce EPS of $.29 compared to $.26 in the same period last year. The fiscal year ahead is forecast to post EPS of $1.33 compared to $1.12 this year. Rivals TimeWarner (NYSE: TWX), Viacom (NYSE: VIA), and CBS (NYSE: CBS) are expected to do no better. Ultimately, News Corp will trade on results more than any other factor.

The reasons that the News Corp stock will recover are much greater than those that would push it down.

Douglas A. McIntyre     Let us know what you think of this article  douglasamcintyre@247wallst. com