NEW YORK ( TheStreet) -- Bull markets are by nature confounding: reality mostly trails expectations, and a market in near constant escalation begs asking whether things are really this good. Media heavyweights News Corp ( NWSA), Time Warner ( TWX) and Viacom ( VIAB) have surged on this market, a bull run now in its fifth year. News Corp on Thursday closed at $30.51, having gained 20% in 2013 while boosting the stock's valuation to 19.4 times earnings, near its highest level in three years. Time Warner is doing much the same, trading at 17.3 times earnings, near its highest level since December 2009. News Corp investors have doubled down on the stock since June when Chairman Rupert Murdoch, chastened by the U.K. phone-hacking investigation, agreed at long last to separate his publications assets from his much faster-growing TV and film businesses. News Corp shares have gained 35% since that announcement.
Nonetheless, the outlook on television advertising, according to Doug Creutz, a San Francisco-based analyst at Cowen & Co., is "O.K., not great" and News' Fox network "has some ratings issues that they do need to fix." Indeed, viewership at Fox among the coveted 18 to 49 age group has been 23% lower this season through March 17 compared to the same period a year ago. "American Idol" may finally have run its course. But that less-than-stellar picture hasn't phased investors, or Wall Street analysts. Creutz is one of 20 sell-side marketers who rate News Corp a 'buy,' or its equivalents, versus three analysts with a 'hold.' Larry Haverty, a portfolio manager at GAMCO Investors and an owner of News Corp shares, says investors have been monitoring the company's cash flow projections, and like what they see. Sure, advertising isn't growing at a double-digit pace but distributors of Fox's broadcast and cable-TV networks are paying more to carry those channels. The profit picture is enticing: News Corp's earnings per share on an adjusted basis is expected to rise 19% this year and 18% in 2014, according to the average estimate of 24 analysts in a Bloomberg survey.
"Most of the cash flow is coming from the cable networks, and cable networks are the best media business around," Haverty said in a phone interview on March 26. "Advertising is volatile but affiliate fees are steady and predictable, and those fees are growing faster than the ad market.'"