Macquarie Upgrades News Corp: Earnings Can Rebound, M&A Strategy To Remain Focus

In a recent report, Macquarie analyst Tim Nollen and his team upgraded shares of News Corp NWSA to Outperform, ahead of the announcement of the company’s Q4 financial results, scheduled for August 6.

“While elements of the business continue to face structural challenge,” this is, in their view, already reflected in the share price. In addition, “earnings can rebound as it cycles a number of one-off impacts and Education losses are curtailed.”

Nollen and his team are expecting strong quarterly results, driven by softer comps (Books), considerably lower restructuring costs (News and IS), and structural growth (Fox Sports). Furthermore, they see some stabilization of the News and IS segments outside the United States, and a more robust quarter for the REA Group also helping. Overall, they expect to see consolidated EBITDA surge 22.9 percent to $176 million in the fourth quarter, and up 4.4 percent to $879 million for the full year.

Going forward, the analysts believe the fiscal 2016 outlook will also be solid, assuming the company can continue to drive growth from the above mentioned segments, while curbing losses in others like the Education business. The firm is anticipating fiscal 2016 earnings of $0.56 per share, up from $0.47 per share modeled for 2015.

Finally, Macquarie looks into News Corp’s capital management and M&A strategy, which they believe will remain a focus, as the company counted with roughly $2 billion in cash as of March 30 – after acquiring Harlequin and Move. To date, News Corp has, “demonstrated a focused approach to M&A by containing larger spend to existing areas of competence (Books and Digital RE) which should allay some concerns over the vague guidance on M&A strategy at the time of the spin-out from FOX."