I’m surprised to see Credit Suisse analyst Michael Senno’s raise his recommendation for News Corp this morning to “outperform” from “neutral.” A few weeks ago he warned that we should expect “modest” growth in this year’s upfront ad sales market. That should be worrisome for Fox, where prime time ratings are down 17% so far in the current TV season. And News Corp shares are beginning to look expensive. They opened this morning at $30.85, a 52-week high. After rising 20% in 2013, and 55.4% for the last 12 months, News Corp is approaching the all time high of $33.50 it hit in early 2000. But Senno likes just about everything he sees at Rupert Murdoch’s company as he raised his target price to $36 from $28. Mostly he believes the company can continue to squeeze cash from pay TV distributors and subscribers: By 2017 he forecasts that cable and satellite companies will pay $1 per subscriber per month for Fox Sports 1, up from about 22 cents that they currently pay for SPEED which is being rebranded as a general sports channel. Senno is optimistic that News Corp can also raise prices by rebranding Fox Soccer into a young adult-oriented FXX, and changing FUEL into Fox Sports 2. The analyst also believes Fox’s ratings will recover from the downturn that’s due in part to the off-pitch performances of American Idol and X-Factor. And he says that Fox could collect $640M by selling its stake in Hulu. Senno adds that he’s confident Rupert won’t use the cash to buy something that investors hate, like he did in 2007 when he spent $5B to control Dow Jones. The company has “followed a disciplined M&A strategy over the past year” to focus on sports and international properties. As a result, Fox Group — the entertainment company to be created this year when News Corp spins off its publishing assets — should be able to earmark $4.4B for share repurchases and dividends in 2014, Senno says.
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