UBS analyst Evan Karatzas sees upside in News Corp to the tune of 30% based on his sum-of-the-parts valuation.
“We see better value recognition in the Dow Jones growth profile as the key way to bridge this valuation gap,” Karatzas says.
“Our forecasts are 5-6% ahead of consensus in FY26/FY27 suggesting the market is not fully factoring in the growth potential and thus multiple of Dow Jones.”
Karatzas noted that News still appeared attractive from a top-down group-level basis and forecast a three-year EPS CAGR of 21%, largely driven by the combination of Dow Jones, debt reduction and REA Group.
“With the one-year forward P/E of 30x relatively reasonable, we think the EPS growth alone can be a driver of acceptable share price returns even without multiple expansion,” Karatzas wrote.
He views the Foxtel sale as “a clear positive,” citing improved free cash flow (FCF) generation due to Foxtel’s high capital intensity, a stronger balance sheet from the substantial debt reduction in the sale and a more streamlined News Corp business and investment case.
NWS shares last traded up 1.9% at $51.75.
Nine downgraded to Neutral
While Karatzas sees News as a Buy opportunity, he has downgraded Nine Entertainment to Neutral.
“Nine remains in a difficult position with the combination of ever-escalating content costs with a very challenging macro advertising environment,” Karatzas said. “Over the last three years, EPS has declined by about 30% reflecting these challenges.”
“We don’t see enough valuation support at a FY25/26 free-cash-flow yield yield of 6/9 per cent to remain buyers of a potential cyclical recovery.
“We are interested, however, in the strategic review currently underway, which could help realise value within the Domain ownership.”