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Cable, Film Should Drive News In 2007

2/02/2007 7:00 PM Eastern

Merrill Lynch media analyst Jessica Reif Cohen restated her “buy” rating on News Corp., citing strong growth at its movie studios that will offset fiscal second-quarter weakness in its broadcast television business.

In her report, Reif Cohen lowered her second-quarter growth estimate for earnings before interest and taxes (EBIT) to 22% from her previous projections of 31% and reduced her earnings per share estimate to 25 cents per share from 26 cents. The revision was made mainly because of what she expects to be poor performance at its MyNetworkTV and Fox broadcast networks and its StarTV international satellite networks.

Reif Cohen left her full-year growth estimates for News Corp. unchanged — revenue growth of 8% and operating income growth of 16% — largely because of strong expected theatrical and DVD sales for the film unit, continued strength at its cable networks and a second half resurgence at the Fox network.

For the quarter Reif Cohen expects cable network revenue to rise 17% to $948 million and operating income also to increase 17% to $307 million. The cable network division also should receive a boost from the launch of the Fox Business Channel, slated for later this year.

Although ratings at MyNetworkTV continue to disappoint, Reif Cohen added that she expected the Fox broadcast network to gain momentum in the second half of the fiscal year, driven by the strong start of flagship programs such as American Idol and 24. “We believe [News Corp.] fundamentals remain strong,” Reif Cohen wrote.

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