News Corp (NWSA, Financial) has recently seen a daily gain of 3.72%, with a 3-month gain of 26.34%. It has an Earnings Per Share (EPS) of 0.47. This article aims to determine whether News Corp (NWSA) is fairly valued. Continue reading for a comprehensive valuation analysis.
Introduction to News Corp (NWSA, Financial)
News Corporation is a diversified media conglomerate with a significant presence in the U.S, the U.K., and Australia. Key brands include The Wall Street Journal, Herald Sun, and The Times. The company also has a strong presence in the Australian pay-TV market through Fox Sports and Foxtel (both 65%-owned), while its 61%-owned REA Group is the dominant real estate classified business in Australia. In addition, it owns HarperCollins, one of the largest book publishers globally, and also has a substantial digital property advertising business (Move) in the U.S.
News Corp's current stock price is $21.07, with a market cap of $12.10 billion. The GF Value, an estimation of fair value, is $19.82. This sets the stage for a deeper exploration of the company's value.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. It is calculated based on three factors:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) that the stock has traded at.
- GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of the business performance.
We believe the GF Value Line is the fair value that the stock should be traded at. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher.
News Corp (NWSA, Financial) is believed to be fairly valued based on the GuruFocus Value calculation. Because News Corp is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength of News Corp (NWSA, Financial)
It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. News Corp has a cash-to-debt ratio of 0.4, which is worse than 68.8% of companies in the Media - Diversified industry. The overall financial strength of News Corp is 6 out of 10, which indicates that the financial strength of News Corp is fair.
Profitability and Growth of News Corp (NWSA, Financial)
It is less risky to invest in profitable companies, especially those with consistent profitability over the long term. A company with high profit margins is usually a safer investment than those with low profit margins. News Corp has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $10.10 billion and Earnings Per Share (EPS) of $0.47. Its operating margin is 6.67%, which ranks better than 62.28% of companies in the Media - Diversified industry. Overall, the profitability of News Corp is ranked 6 out of 10, which indicates fair profitability.
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long-term performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of News Corp is 0.8%, which ranks better than 53.03% of companies in the Media - Diversified industry. The 3-year average EBITDA growth rate is 14%, which ranks better than 64.21% of companies in the Media - Diversified industry.
ROIC vs WACC
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, News Corp's ROIC is 4.93 while its WACC came in at 9.51.
Conclusion
In short, the stock of News Corp (NWSA, Financial) is believed to be fairly valued. The company's financial condition is fair, and its profitability is fair. Its growth ranks better than 64.21% of companies in the Media - Diversified industry. To learn more about News Corp stock, you can check out its 30-Year Financials here.
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