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News Corp. shares jump 18% as earnings beat forecasts

After a monthlong pounding because of the British phone-hacking scandal, the media giant gets some good news.

August 12, 2011|By Meg James, Los Angeles Times

After taking a drubbing from investors during the last month because of the British phone-hacking scandal, Rupert Murdoch's News Corp. generated some positive headlines.

Amid a broader market rally Thursday, shares in the media company soared 18% to $16.19 after News Corp.'s earnings beat analysts' expectations.

The 80-year-old Murdoch also pleased investors during a Wednesday after-market earnings call by clarifying that his top deputy, Chief Operating Officer Chase Carey, would succeed him as chief executive if Murdoch was, in his words, "run under a bus."

News Corp. stock trades at a discount compared with its peers, in part because of lingering questions over succession, because Murdoch has long been grooming his children to one day run the company. Another concern for Wall Street has been Murdoch's tendency to overpay for assets, including the Wall Street Journal.

Carey, however, said the company was not planning to go on a spending spree. Instead, he reaffirmed that News Corp. would raise its dividend and buy back at least $5 billion in shares.

One prominent analyst, Michael Nathanson of Nomura Equity Research, said investors breathed "a collective sigh of relief" in response to News Corp.'s solid outlook for its upcoming fiscal year, and its smaller appetite.

News Corp. had built its cash reserves to more than $13 billion so that it could buy out the remaining shares of British Sky Broadcasting, the largest pay-TV service in Britain. Last month, News Corp. withdrew its bid, valued at $12 billion, amid the fallout of the phone-hacking scandal at the now defunct British tabloid News of the World and criticism by members of the British Parliament that Murdoch already had too much media power.

"We plan to use this cash to continue to pursue additional buybacks beyond the $5 billion one recently announced if our stock continues to be undervalued, and today it is woefully undervalued," Carey said.

The company's share price, which closed Wednesday at $13.71, is still down about 10% from its pre-scandal trading levels. The day the British crisis exploded, July 5, News Corp. shares topped $18 a share.

News Corp. reported net income of $683 million in its fourth quarter, which ended June 30, a 22% decline from a year earlier, including a loss from the June sale of the social network Myspace. Revenue for the quarter rose 11% to $8.9 billion.

"While headline risk remains present, we view News Corp. valuation as the most attractive in the space," Barclays Capital media analyst Anthony DiClemente wrote in a research report.

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