NEW YORK ( TheStreet) -- News Corporation's ( NWSA) share price is falling after the media company was downgraded to a neutral rating from a buy rating by BMO Capital Markets analyst Jeffrey Logsdon. Logsdon lowered his rating on the stock on the belief that the company will face several challenges in fiscal year 2011. He predicts the company will stumble on tough comps in the December quarter against Avatar's strong performance in the year ago period. "No one should have expected a duplication of
fiscal year 2010 results but investors are likely to be reminded each quarter as domestic and international revenue sources this past calendar year are replayed," he said in his Jan. 12 research. He cut his fiscal 2011 filmed entertainment segment earnings before interest, taxes, depreciation, and amortization estimate to $900 million from his previously projected $1 billion and his fiscal 2012 estimate to $900 million from $1.05 billion. He also expects television ratings at its broadcast network to be a "drag on earnings" after the company's cable network saw close to a 10% decrease in ratings in the December quarter. "In calendar 2011, the TV segment faces the challenge of a difficult creative cycle as American Idol transitions from a Simon Cowell-led personality force on the highly popular series to a new crew," Logsdon said. When Simon Cowell, Ellen DeGeneres and Kara DioGuardi announced that they would not be returning for the 10th season, Fox launched a search for a new panel of judges. After a long summer of rumors and speculation, Fox named Jennifer Lopez and Steven Tyler the new judges. The company hopes that the fresh cast will help Idol bring in higher ratings, after the show's viewership dropped 16% in season 9 from season 8.
Logsdon also believes the ratings shortfall from this year's World Series will lower revenue and operating income results in the December quarter. He therefore lowered his 2011 television segment EBITDA estimate to $250 million from $400 million and his 2012 estimate to $350 million from $500 million. He forecasts that competitive pressures will bring down Sky Italia's results, and predicts that Sky Deutschland will stay in "investment mode" through 2011. "The combination of low-to-no earnings growth and what we see as a fair current valuation should limit stock price appreciation to that of the broader market," he said. While News Corp. is still awaiting regulatory approval on its $12.4 billion bid to takeover British Sky Broadcasting Group, or BSkyB, Logsdon does not think the process will have a lasting influence on News Corp.'s stock and noted that the transaction is not a variable in his downgrade. He slashed his fiscal 2011 earnings estimate to $1.04 per share from $1.14 per share and his fiscal 2012 estimate to $1.13 a share from $1.26 a share. He also dropped his 9 to 15 month price target on the stock to $16 from $20. Today the stock is falling more than 0.7% to around $14.30. -- Written by Theresa McCabe in Boston. >To contact the writer of this article, click here: Theresa McCabe. >To follow the writer on Twitter, go to @TheresaMcCabe. >To submit a news tip, send an email to: firstname.lastname@example.org.