Despite new accusations, News Corp looks solid

The financial impact of the scandal is minimal as News Corp does not rely on its publishing business for the majority of its value.

By Trefis Mar 2, 2012 1:48PM
Image: Newspaper on front step of house (© Siri Stafford/Photodisc/Getty Images)A little scandal isn't keeping News Corp (NWS) down. Shares of the media giant have risen by 12% this year and by 33% since last October. 

Not bad, considering the blow to its reputation the company suffered when its tabloid, The News Of The World, was accused of resorting to illegal reporting practices. The stock price, which initially took a hit last year, has now recovered to a great extent.

But more upheaval awaits. New accusations have emerged in the last couple of weeks, one from a London police official and another from Cherie Blair, wife of the former U.K. prime minister Tony Blair, accusing News Corp. of bribing and hacking phone lines, respectively.


The financial impact of the scandal appears to be minimal, since News Corp doesn't rely on publishing for the majority of its value. We estimate that the U.K. newspaper business constitutes less than 5% of News Corp's stock. News Corp competes with other media giants such as Disney (DIS) and CBS (CBS).


News Corp Stock Break-Up

News Corp's recent earnings suggest that even though its newspaper business is on a decline, its cable networks and broadcasting businesses are doing well enough to compensate. This further suggests the diminishing importance of the business hounded by scandals. News Corp has replaced its previous Sunday tabloid in the U.K. with a new one, and is trying to rebuild its image and gain public trust.


Additionally, while the company continues with its share repurchase program, it may look at a new similar program once the current repurchase program is complete. Given its strength, investors are showing confidence in the stock, and the company is trying to send a positive signal to the market with this buyback announcement. This will help it mitigate the negative impact of the scandal surrounding its U.K. publishing unit.


Our price estimate for News Corp stands at $23.10, implying a little over 10% premium to the market price.

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