Needham & Company Maintains a 'Hold' on News Corp. (NWSA); FY1Q12 ROIC Analysis and FY12 Outlook

Needham & Company maintains a 'Hold' on News Corp. (NASDAQ: NWSA).

Needham analyst says, "There is currently a 93% correlation between FY12E ROIC and media industry share prices. Wall St closely follows the income statement, ie, the numerator. In this quarterly report, we analyze the denominator - trends in assets employed, capital intensity, and free cash flow. Highlights from NWSA’s capital allocation in the 9/30/11 quarter included: 1. Return of Capital. If shares plus debt are shrinking, this implies less capital is being used in the business, which implies rising ROICs. Average Shares Outstanding fell by 24mm ($400mm) but Net Debt rose by $1.2B in the September quarter. Therefore, NWSA’s capital required from capital markets rose by about $800mm in the September quarter. 2. CapX trends are a lead-indicator of ROIC growth. NWSA’s CapX fell 30% to $248mm in the September quarter (a good fact), after rising 28% y/y during FY11. 3. TV & Film. At 9/30/11, NWSA had $6.6B invested in buying and making film and TV programming. Even though the film division has some of the lowest returns on capital in the NWSA portfolio, these investments have been growing, which is the opposite of peers. 4. Total Assets fell by $2.3B (4%) to $59.7B at 9/30/11. Net assets employed fell by $1.02B and cash balances fell by $1.25B. 5. Cash From Operations posted lower results in the September quarter, down 15% y/y to $424mm. However, Cash from Ops rose 20% to $4.4B year in FY11."

For an analyst ratings summary and ratings history on News Corp. click here. For more ratings news on News Corp. click here.

Shares of News Corp. closed at $17.14 yesterday.

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