News Corp Earnings: Avatar Upside?

News Corp.'s headquarters in New York.
Mark Lennihan
News Corp.'s headquarters in New York.

Wall Street's expecting Rupert Murdoch to make some serious progress this quarter.

News Corp reports its fiscal second quarter earnings after the bell Tuesday and as analysts release a long string of positive reports and upgrades, buzz is building. A healthier ad market is expected to boost results at the cable, TV and ad markets; these divisions should also benefit from easy comparisons to a weak year-ago quarter. The movie studio should be strong, even though it won't benefit much yet from Avatar's huge success.

Expect earnings per share of 20 cents, up from 12 cents a share a year earlier, on $8.23 billion in revenue. StreetAccount consensus is for a 17 percent increase in operating growth. News Corp's stock is up about 100 percent over the past 12 months, and it was up even more before the sell off earlier this year.

News Corp's results will be a key indicator of the overall strength of the ad markets, as it's exposed to advertising in broadcast and cable TV, as well as newspapers. Barclays Capital analyst Anthony DiClemente is optimistic. Last week he raised his price target for the stock to $15 on higher expectations for advertising and projection for a mid-cycle recovery.

RBC Capital Markets' David Bank is bullish about News Corp's advertising prospects because of the Supreme Court ruling that will allow corporations to buy unlimited amounts of political ads. Bank expects this to drive *many* more dollars into political advertising, and News Corp would be a major beneficiary. He sees the influx of more advertising demand ahead of the 2010 mid-term election providing a boost to prices across the board.

Miller Tabak's David Joyce boosted his estimates on Monday for News Corp based on Avatar's huge numbers. He increased his estimates for filmed entertainment for the quarter up to $1.974 billion from $1.639 billion, and boosted his operating income projections for the segment to $274 million from $199 million. More than half the profits from Avatar will come in the March quarter. Soleil analyst Alan Gould expects Avatar to generate $1.3 billion in revenue for News Corp, which he believes will prompt the media giant to bump up guidance on the earnings call. We'll be listening.

Time Warner and Comcast follow News Corp with earnings announcements Wednesday morning.

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