On Monday, Loop Capital adjusted its price target for News Corp. (NASDAQ:NWSA), bringing it down to $41 from the previous $44, while still recommending a Buy for the media conglomerate's stock. Currently trading at $27.86, News Corp has demonstrated strong momentum with a 14.35% gain year-to-date.
According to InvestingPro data, the company maintains a "Good" Financial Health Score of 2.53, supported by robust price momentum and cash flow metrics. This revision follows News Corp's recent announcement of the sale of its Australian media business, Foxtel, to sports streaming company DAZN for a total of $2.1 billion.
The transaction, which includes the sale of News Corp's cable, satellite, and streaming company, values Foxtel at over seven times its forecasted 2024 earnings before interest, taxes, depreciation, and amortization (EBITDA). This valuation exceeded Loop Capital's expectations, particularly because the deal involved an equity exchange rather than a cash payment.
With News Corp's current market capitalization of $16.37 billion and last twelve months EBITDA of $1.27 billion, this deal represents a significant strategic shift. For deeper insights into News Corp's valuation metrics and future growth potential, InvestingPro subscribers can access the comprehensive Pro Research Report, which includes detailed analysis of the company's strategic initiatives and financial outlook.
According to the terms of the deal, News Corp will recover its $361 million intercompany loan to Foxtel and will no longer need to include $777 million of Foxtel's non-recourse debt on its balance sheet. Additionally, News Corp is set to acquire a 6% equity interest in DAZN, which is approximately valued at $640 million. Telstra (OTC:TLGPY), which holds a 35% stake in Foxtel, will also receive a 3% equity stake in DAZN, estimated to be worth around $350 million.
Loop Capital noted that the sale of Foxtel was anticipated and that News Corp is expected to receive about $1 billion, inclusive of the repayment of the intercompany loan, aligning with their December 9 projections. The firm highlighted that while Foxtel was sold at a higher multiple than projected, News Corp will receive equity in DAZN instead of the $660 million in cash previously modeled.
The sale of Foxtel is seen as a strategic move for News Corp, aimed at streamlining its operations and divesting from a division that was valued at a lower multiple.
Despite the reduction in the price target, Loop Capital reiterated its confidence in News Corp's stock by maintaining a Buy rating, attributing the price target adjustment primarily to the market performance of REA Group shares, a subsidiary of News Corp.
Based on InvestingPro's Fair Value analysis, News Corp currently appears slightly overvalued, though analyst consensus remains bullish with a mean target suggesting potential upside of 28%.
In other recent news, News Corp has been actively pursuing its stock repurchase program, targeting its Class A and Class B common stock. The $1 billion initiative is part of the company's ongoing strategy to enhance shareholder value. Recent financial results show a significant growth for the company, with a 3% year-over-year increase in revenue to $2.58 billion.
Profitability improved by 14% to $415 million, and net income surged to $144 million. Earnings per share also climbed to $0.21, a notable rise from the previous year's $0.21. Despite a 5% decline in News Media revenues to $521 million, analysts from InvestingPro maintain a positive outlook on News Corp's financial health, supporting the continuation of the stock buyback strategy.
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