News Corporation (ASX: NWS) shares hit a new 12-month low last week after the company reported its first-half results, despite its numbers beating expectations for revenue and earnings.
So why did the stock go down, you might ask?
That is likely explained by the fact that the company owns a 61% stake in REA Group Ltd (ASX: REA), whose shares plummeted on Friday, despite what were once again reasonable results.
So given that News Corp shares are trading near their 12-month lows – they've recovered very slightly today – it's worth having a look at whether they now represent good value.
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Brokers like what they see
We've had a look at new broker reports from both UBS and Macquarie Group, and both say the shares are trading at a discount at the moment.
Starting with Macquarie, the team there have a price target of $44.40 on Macquarie shares, and factoring in the company's modest dividend yield, they're expecting a total shareholder return of 16.4% over 12 months.
The Macquarie team said the News Corp result last week beat expectations across revenue, EBITDA, and net profit, while profitability had continued to improve.
In the company's US real estate business, they noted that Move, which operates Realtor.com, was "generating modestly break-even EBITDA, and with an improving backdrop, we are becoming more constructive on the earnings recovery''.
They added that the Dow Jones division posted its highest quarterly revenue growth in nearly three years, which also came in above expectations.
However, they noted:
News Corp's valuation is reliant on REA (61% stake) and its share price has dropped 34% in the past six-months, broadly tracking the de-rating in global peers given AI uncertainties.
The Macquarie team also said the company's news media division had headwinds with ad trends, "likely to continue to be difficult''.
Over at UBS, they were more bullish on News Corp shares, with a price target of $65.50 and a buy recommendation.
While they said AI displacement concerns "remain a key overhang" for the media sector, "we remain comforted by News' extension of its Bloomberg partnership to incorporate AI licenses and achieving a range of enterprise deals within its Dow Jones segment''.
They added:
We believe News looks best placed across our media coverage to benefit from gradual content monetisation and AI developments with exposure to proprietary data from Dow Jones, defensive moat from REA and existing large language model (LLM) partnerships as proof cases. We see scope for a re-rate in the stock as more partnerships potentially come to the table in the short to medium term, as LLMs and AI platforms continue to demand reliable data and content for model training.
News Corp shares were 1.2% higher at $38.77 on Monday.
