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Inside Wall Street


Give Fox Some Respect

Conglomerates don't usually generate much excitement on the Street, but global media and entertainment giant News Corp. (NWS) is gaining traction in spite of the market's volatility. Some savvy pros say News Corp. is the most attractive media group. "News deserves to be bought by investors because of its diverse content and distribution assets and global brand," says Mario Gabelli, who heads Gabelli Asset Management, which owns 1.5 million News shares. "News Corp. is the fastest-growing media conglomerate, priced at a deep discount to its peers," says Larry Haverty, portfolio manager at Gabelli Global Multimedia Trust (GGT). He notes that in five years operating income tripled, from $629 million to $1.8 billion, and revenues jumped 84%. During the same period, News shares have risen some 50%, but in the past six months they have dropped from 26 to 19.81. Haverty, who expects the stock to hit the high 20s in a year, says: "News owns a great combination of assets and yet gets no respect for it." That's likely to change, he says, as investors come to realize that spending on national ads is getting stronger. "The Super Bowl, for example, was a complete knockout for Fox Broadcasting [a unit of News Corp.]," he notes. He credits Roger Ailes, chairman and CEO of Fox News and chairman of Fox TV, for the success.

In its most recent quarter, News posted solid, broad-based results driven by almost all segments, says Jason Helfstein of Oppenheimer (OPY), who rates the stock outperform. He says Fox's television operations produced "exceptional results" as operating earnings jumped 119% from last year. And Fox's cable networks also did well--profits grew 23%.

That doesn't include results from its new Fox Business Network, which Tuna Amobi of Standard & Poor's (MHP) expects to break even in three years. Amobi, who rates News a buy, predicts that the 30 million to 35 million households Fox Business reaches now will jump to 50 million to 60 million in that period. Fox has a history, Amobi notes, of doing things fast. The company's newspaper and magazine units also performed well, each posting a 15% earnings rise. Amobi predicts Fox Interactive Media, which includes MySpace, will pull in sales of $1 billion in fiscal 2008. Dow Jones, which News acquired in late 2007, should contribute decent sales and earnings in 2008, he says.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

Superior Logs Superior Results

With petroleum prices not far off $100 a barrel, oil-service stocks should be skyrocketing as well. Many have been, including Schlumberger (SLB). But Superior Energy Services (SPN), which offers specialized services to boost oil and gas well production, trades at a price-earnings ratio of 10, vs. Schlumberger's 18 and other oil-service companies' 11 to 14. Yet Superior's yearly growth in earnings per share is 25% to 30% vs. its peers' 20% to 23%.

John Maloney, president of investment firm M&R Capital Management, which owns shares, says Superior, now at 42.87, is worth 60, based on earnings and cash flow. He says Superior will do well regardless of oil prices because the large producers need its services during good or bad times. One of its specialty services is "well intervention," which involves repairs and maintenance of offshore and onshore wells. Maloney sees earnings of $4.30 a share in 2008 and $5.30 in 2009.

Robin Shoemaker of Bear Stearns (BSC), who rates it outperform, says it's possible Superior (a client) will attract larger oil-service companies to buy it because of its earnings consistency, technology, and low valuation.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

The Drugmaker's Friend: Pharsight

Little-known Pharsight (PHST) provides services to Big Pharma, including Pfizer (PFE) and Eli Lilly (LLY)--plus the Food & Drug Administration. Using its simulation software, Pharsight helps drugmakers and biotechs decide whether to put a new compound through expensive clinical trials. "We help save hundreds of millions of dollars," says CEO Shawn O'Connor. The FDA is using Pharsight's tools to standardize its own analysis of drugs. Pfizer employed one of Pharsight's software programs early in the process of assessing a new lipid-altering agent and concluded there was little chance the drug would deliver an improvement upon an existing treatment.

Private investor Tom Maguire, who for 13 years managed the Safeco Growth Opportunity Fund and now owns stock in Pharsight, says the company's technology is an important way for pharmaceutical companies to increase their hits and reduce their misses. It offers "extraordinary value" for biotechs and drugmakers, he says. Michael Petusky of Noble Financial Capital, who rates Pharsight, now at 4.68 a share, a buy, with a 12-month target of 6.50, expects earnings of 15 cents a share in 2008 and 26 cents in 2009, vs. 16 cents in 2007.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.


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