Avatar Is So Good, You Shouldn't Short News Corp. Stock


Avatar will drive “incredible excitement” in the months to come, says Pali Research’s Rich Greenfield.

Because of that, Rich upgraded News Corp. from a sell to neutral in a note this morning.

Greenfield says the risk/reward of shorting News Corp. after seeing a screening of Avatar is not appealing.

He writes, “the honest truth is that nobody in the world has ever seen a movie like Avatar.”

While the movie probably won’t generate huge profits, it will not be a disaster, profit-wise, he says. Fox’s film slate overall is looking good.

Here’s Greenfield:

  • Earnings estimates are going higher, even without outperformance in film. As shown in Exhibit A, our revised estimates now assume high-teens organic operating income growth in fiscal (June) 2010, well above management guidance of high-single to low-double digit growth, albeit largely discounted in the stock. In addition, we believe EPS will be $0.86 now, versus street consensus of $0.81 (our prior estimate was also above consensus at $0.82).
  • Our short thesis had been premised on the lack of growth post-FY2010 (we are still expecting flat EPS in FY11, albeit off a higher base). However, with earnings heading higher, shorting for an FY11 earnings miss simply feels pointless.

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