Timing Issues Affect News Corp. 1Q

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Merrill Lynch & Co. media analyst Jessica Reif Cohen reiterated her “buy” rating on News Corp. stock, warning that fiscal first-quarter results may be lower than expected but that it would more than make up for that shortfall during the rest of the year.

In her report, Reif Cohen wrote that she expects operating income growth to be about 2% in the quarter — versus 33% growth previously — but that is primarily due to timing issues regarding the profitability of some of its films weighted more toward later quarters. As a result, she also lowered her earnings-per-share estimates on the stock from 26 cents to 19 cents.

“We expect that investors will look through the near-term blip in earnings and focus on long-term growth prospects that remain superior to its peers,” Reif Cohen wrote.

Also adding to the upside are News Corp.’s ongoing negotiations with cable and satellite distributors for renewal agreements for its Fox News Channel. While Fox News has said it wants a four-fold increase from the current 25 cents per subscriber per month, to about $1, Reif Cohen said she would be pleased with half that amount.

Reif Cohen estimated that renewal deals for Fox News will likely be for 50 cents for the first year and growing only 5% per year afterward, with 25% of the affiliate fees renegotiated each year.