News Corporation, Inc. (NWS) Share Trading Recommendation

News Corporation, Inc. (NWS) have a Buy 1 share trading recommendation and an increased price target of $27 from analyst UBS. The analyst has commented that the share buyback is an important catalyst for News Corp shares. Television Weakness as Anticipated; Expect 2H07 Improvement Revenue grew 17.7% to $7.84 billion (UBSe $7.23 billion), operating income grew 24.3% (12.2% excluding $99 million redundancy charge in F2Q06) to $1.14 billion (UBSe $1.10 billion) and adjusted EPS grew 19.0% to $0.26 per diluted share (UBSe $0.25) led by strength at Filmed Entertainment and Fox Interactive Media (FIM) as well as improvement at Sky Italia. Television saw weaker performance as anticipated driven by MyNetworkTV and Cable Network operating income lagged expectations on expense timing. The analyst expect improvement at both segments in the second half of fiscal 2007 on improved ratings at the FOX Broadcast Network, a rebound at STAR on key programming and a reversal in expense timing at Cable Nets. FIM revenue grew 70% in the quarter to $125M led by MySpace, which saw revenue triple year over year. Management noted that FY07 FIM revenue is pacing ahead of $500 million guidance (UBSe $531 million). Further, management implied that segment revenue could double in FY08 (approximately $1 billion in revenue) driven by the MySpace/Google partnership with a 20% segment operating margin target that may prove conservative. The analyst is raising our FY08 FIM revenue estimate to $900 million from $800 million and our operating income estimate to $135 million from $80 million. They have increased our FIM segment valuation to $3.38 billion from $2.0 billion, maintaining our 25x FY08 EBIT valuation multiple. News Corp. has $3.4 billion in capacity remaining under its current repurchase plan, which it expects to employ by May 2008. In addition, the company's DIRECTV swap with LCAPA (expected in Calendar 3Q07) will result in a 16.3% decrease in outstanding shares. The company noted a leverage ratio target of 3.0x (net debt/EBITDA) versus a current 1.2x leverage ratio (below the 2.1x media industry average), which it could move toward over the intermediate term. Note that a 1.0x leverage increase would represent approximately $5.4 billion in incremental repurchases or approximately 7% of existing shares. They view the stock buyback as a meaningful catalyst for the remainder of the year and believe focus will be on cheaper NWS/A shares vs NWS as a current spread of 5.1%. They continue to view NWS/A as our top pick in the entertainment segment. UBS are moving our rating to Buy 1 from Buy 2 on greater visibility driven by organic double digit growth, no material acquisitions expected, and an accelerated return of capital program. UBS are increasing our price target to $27 from $25 given our updated FIM valuation reflecting stronger growth and higher expected profitability and our expectation of full use of the company's existing repurchase program by March 2008, which drives accretion to existing P/E metrics.They view the company's current valuation as attractive versus media peers relative to long-term operating growth prospects. Our price target is DCF based using a 9.3% WACC and 3.5% long-term growth rate.

News Corporation Limited is listed on the Australian Stock Exchange (ASX) under stock code NWS. In November 2004, The News Corporation Limited underwent a reorganisation and redomiciled in the United States. That company's securities ceased trading under the ASX codes NCP and NCPDP on 3 November 2004 and commenced trading the following day as an American company under the new name News Corporation, Inc. Securities based on those American shares still trade on ASX, as Chess Depository Interests under the codes NWS and NWSLV. For any announcement in relation to the former Australian company (The News Corporation Limited) please use the code NCP. For any subsequent announcement by the American-based News Corporation, Inc. please use the code NWS. You can view their investor website here.NWS was listed on the ASX on 4 November, 2004. News Corporation is a Diversified international media and entertainment company. Rupert Murdoch is the appointed Chairman, Director, Managing Director. Read previous stock recommendation for News Corporation (NWS).Find out the meaning of the recommendations in this primer. Browse for other stockbroker recommendations. Check your charts and good luck with your share trading!