A growing presence in emerging markets, such as India and Latin America, bodes well for long-term growth and increased leverage of its largely fixed-cost base.
Hence, notwithstanding weakness in the Television division, due to lower advertising revenue, and CEO Rupert Murdoch's flagging of less robust growth in fiscal 2009, we believe at current levels that the stock is attractive and move to a Buy recommendation.
We have valued News Corp on a forward price/earnings (P/E) basis, as well as through a comparison of similar firms in the media/entertainment sector. We believe NWS is among the most diversified operators in the sector, with significant interests in all major sub-segments (Filmed Entertainment, Television, Cable Network Programming, Direct Broadcast Satellite Television, Magazines and Inserts, Newspapers, and Book Publishing).
Notwithstanding the currently challenging macro-economic environment, we believe the company is well positioned to exploit growth opportunities in both cable and direct broadcast satellite television, and apply a multiple of 13x FY09 EPS of $1.38 to derive a six-month target price of $18.
Magellan Midstream Beats Ests
Magellan Midstream Partners, L.P.'s (MMP) better-than-expected second-quarter 2008 earnings were driven by profits from commodity-related activities and strong performance from fee-based pipeline and terminal services, partly offset by decline in refined products transportation volumes.
Importantly, the partnership raised its quarterly distribution for the 29th consecutive quarter to the annualized run rate of $2.75 per unit, up 9% year-over-year. Distributable cash flows were up 25% from the year-earlier level to $96.2 million. Our Hold recommendation, price objective, and estimates remain unchanged at this stage. The management expects pipeline volumes for the full-year 2008 to be in line with 2007 and reiterated distribution growth target of 8%-10% per year through 2010.
In the Petroleum Products Pipeline System, quarterly operating margin (operating profits before affiliate G&A and D&A expenses) was a record $111.8 million, up more than 20% year-over-year. In the Petroleum Products Terminals segment, operating margin was $26.2 million, up nearly 28% year-over-year.
On May 12, Magellan announced its plans to construct a refined petroleum product pipeline to connect the partnership's existing terminal at East Houston with the refining hub of Port Arthur. The new pipeline has a capacity to transport 150,000 barrels per day and is expected to come online by 2011.
Moreover, the partnership intends to invest in its existing infrastructure as well, including the construction of 1.2 million barrels of storage and three additional truck rack lanes at its East Houston terminal and 200,000 barrels of storage at its Frost, Texas facility. The enhancements are expected to be fully operational by 2010. Total investment is approximately $240 million.
