News Corp (NWSA, Financial) recently recorded a daily gain of 4.58% and a three-month gain of 26.88%, with an Earnings Per Share (EPS) of 0.47. These financial indicators lead us to the critical question: Is News Corp fairly valued? In the following analysis, we will delve into the company's valuation, financial strength, profitability, and growth to provide a comprehensive answer.
A Glimpse into News Corp (NWSA, Financial)
News Corporation is a diversified media conglomerate with a significant presence in the U.S, the U.K., and Australia. Its 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 world's largest book publishers, and also has a substantial digital property advertising business (Move) in the U.S.
Currently, News Corp's stock price stands at $21.24, which is slightly above its GF Value of $19.82, indicating a fair valuation. The GF Value is a proprietary measure of a stock's intrinsic value, computed considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates.
Understanding the GF Value
The GF Value represents the intrinsic value of a stock derived from GuruFocus' unique method. The GF Value Line on our summary page provides an overview of the stock's fair value. It is calculated based on three factors: historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) at which the stock has traded, GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of business performance.
According to our valuation method, News Corp (NWSA, Financial) is currently fairly valued. The stock's fair value is determined by historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. Conversely, if the share price is significantly below the GF Value calculation, the stock may be undervalued and have higher future returns. Therefore, since 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)
Companies with poor financial strength pose a high risk of permanent capital loss to investors. To avoid this, investors must thoroughly research and review a company's financial strength before purchasing shares. Both the cash-to-debt ratio and interest coverage of a company are great ways to understand its financial strength. News Corp has a cash-to-debt ratio of 0.4, which ranks worse than 68.42% of companies in the Media - Diversified industry. The overall financial strength of News Corp is 6 out of 10, indicating fair financial strength.
Profitability and Growth of News Corp (NWSA, Financial)
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. News Corp has been profitable 6 years over the past 10 years. During the past 12 months, the company had revenues of $10.10 billion and Earnings Per Share (EPS) of $0.47. Its operating margin of 6.67% is better than 62.28% of companies in the Media - Diversified industry. Overall, GuruFocus ranks News Corp's profitability as fair.
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 53.18% of companies in the Media - Diversified industry. The 3-year average EBITDA growth rate is 14%, which ranks better than 64.08% 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 9.69.
Conclusion
In conclusion, the stock of News Corp (NWSA, Financial) is estimated to be fairly valued. The company's financial condition is fair, and its profitability is fair. Its growth ranks better than 64.08% 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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