With a daily gain of 2.1% and a 3-month gain of 8.59%, News Corp (NWS, Financial) is capturing investor attention. The company's Earnings Per Share (EPS) stands at $0.25. The critical question on investors' minds is whether the stock is fairly valued at its current price. This article delves into a valuation analysis to explore News Corp's intrinsic worth, inviting readers to consider the following comprehensive assessment.
Company Introduction
News Corp (NWS, Financial) is a diversified media conglomerate with a significant presence in key markets such as the U.S., the U.K., and Australia. It boasts prominent mastheads like The Wall Street Journal and The Times, alongside a strong Australian pay-TV market presence through Fox Sports and Foxtel. The company's portfolio extends to HarperCollins, a leading book publisher, and a robust digital real estate advertising business with Move in the U.S. Comparing News Corp's stock price of $22.84 with the GF Value of $21.78, we can begin to unravel the company's valuation story.
Summarize GF Value
The GF Value is a unique measure of intrinsic stock value, combining historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. News Corp's fair value is determined by this rigorous analysis. If a stock trades significantly above the GF Value Line, it may be overvalued, suggesting a potential decline in future returns. Conversely, a stock priced well below the GF Value Line could indicate an undervalued stock with prospects for higher future returns. Currently, News Corp appears to be fairly valued, with the stock trading around the GF Value Line. This suggests that the long-term return on News Corp's stock could closely align with the company's business growth rate.
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Assessing Financial Strength
Before investing, it is crucial to evaluate a company's financial strength. Companies with robust financial health pose a lower risk of permanent loss. News Corp's cash-to-debt ratio of 0.37 is weaker than 68.26% of its peers in the Media - Diversified industry, suggesting some caution is warranted. However, with an overall financial strength rating of 6 out of 10, News Corp's financial condition is considered fair.
Profitability and Growth
Investing in profitable companies, especially those with a history of consistent profitability, is typically less risky. News Corp has been profitable 6 out of the past 10 years. With a revenue of $9.90 billion and an operating margin of 7.35%, it stands better than 62.01% of its industry counterparts. The overall profitability rank of 6 out of 10 reflects fair profitability.
Regarding growth, News Corp's 3-year average annual revenue growth rate of 3.7% ranks better than 60.94% of the industry. However, the 3-year average EBITDA growth rate is 0%, which is concerning when compared to industry peers.
ROIC vs WACC
An effective way to measure a company's profitability is by comparing its Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC). If ROIC exceeds WACC, the company is creating shareholder value. For News Corp, the past 12 months have seen an ROIC of 2.84%, which is below its WACC of 8.93%, indicating challenges in generating sufficient returns on investments.
Conclusion
Overall, News Corp (NWS, Financial) is priced in a manner that reflects its fair value, considering the company's financial health and profitability. However, its growth and ability to generate returns on invested capital relative to its cost of capital raise important considerations for potential investors. For a deeper understanding of News Corp's financials, review its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
