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Josh Brown Sees “Shades of BP” in News Corp. Hacking Scandal

Aaron Task
Editor in Chief
Daily Ticker

Testifying before the U.K. Parliament, News Corp. chairman Rupert Murdoch said Tuesday was "the most humble day of my life" — and that was before he got hit in the face by a protester wielding a plate of white foam.

Murdoch might have been humbled by the proceedings, but he — and other News Corp. shareholders -- were enriched as well. Recouping some of the roughly $8 billion in market-cap that's been eradicated since the scandal broke in early July, News Corp. shares jumped nearly 7% Tuesday.

By most accounts, there was no "smoking gun" in the testimony of Rupert or James Murdoch, and many investors believe the prior slide had created a buying opportunity.

But News Corp. is not out of the woods and still subject to the "reputational, management, litigation and other risks" cited by S&P when it put the company's debt rating on watch for possible downgrade.

Josh Brown, a financial advisor at Fusion Analytics and author of The Reformed Broker blog, sees "shades of BP" in the News Corp. hacking scandal.

As with the Deepwater Horizon disaster, the News Corp. scandal seemed relatively minor at first, but "has gotten to be a bigger and bigger story every day," he says.

Tuesday may have marked the peak of the headline risk for News Corp., which already shut down News of the World in the wake of the scandal and abandoned its bid for the 60% of BSkyB Broadcasting it doesn't already own.

As was the case with BP, there will come a day when News Corp. shares will have fully discounted all the risks associated with the scandal and be a great investment. But Brown says we're not there yet, even though analysts estimate the stock is roughly 20% to 30% undervalued.

"The big thing for investors to consider is what does News Corp. look like now that BSkyB isn't going to happen," he says. "If there is a 'Murdoch discount' hanging over the satellite and cable TV businesses…what does the company look like if that discount fades and there's new management? I don't think new ownership but new management."

To that point, some of the overnight rise in News Corp. shares was attributed to reports Rupert Murdoch was set to step down. But the octogenarian media mogul shot down that idea during testimony, during which he also claimed to be "shocked, appalled and ashamed" by the scandal, but not personally responsible.

Murdoch may be humbled, but he'll not go gently into that good night.

Aaron Task is the host of The Daily Ticker. You can follow him on Twitter at @atask or email him at altask@yahoo.com