Buy The Dip In News Corp, Loop Capital Says In Upgrade

News Corp NWSA shares have fallen nearly 15 percent over the past month, and investors may want to consider buying the stock, as the Street is overreacting to the consolidation of pay TV provider Foxtel, according to Loop Capital.

The Analyst

Loop Capital Markets' Alan Gould upgraded News Corp from Hold to Buy with an unchanged $17 price target.

The Thesis

News Corp's deal to consolidate Foxtel has been anticipated for months, and the controlling company intends to return its new division to growth, Gould said in the upgrade note. (See his track record here.)

The economics behind the business have "barely changed" since the deal announcement, and Foxtel is expected to introduce a new sports-only over-the-top platform that can stream three events at once, the analyst said. Under a worst-case scenario, News Corp should be able to sell the division to a private equity firm for its fair value, he said. 

News Corp's recent $210-million acquisition of the real estate technology company Opcity follows the $750-million it paid for 80 percent of Realtor in 2014. The addition of Opcity is "meaningful" for the real estate portfolio business, which is likely to become the company's largest and fastest-growing division, Gould said. 

News Corp's stock appears "inexpensive" based on multiple metrics, including its 7 times estimated EBITDA, a figure that falls to 4-5 times EBITDA if the company's stake in REA Group is considered a non-earning asset.

The stock is also undervalued based on a sum-of-the-parts model, which would value the company at $20 per share as a private entity, according to Loop. 

Price Action

News Corp shares were down 1.1 percent at $13.45 at the time of publication Tuesday.

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