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Fox Corp.’s latest quarterly earnings improved and included higher advertising revenue, but it was not only its financials that drew Wall Street praise on Wednesday. Analysts also lauded an increased stock buyback program and its strategic implications for the company after the Murdoch family recently dropped plans to merge it with News Corp. And the Street liked what it saw.
CFRA Research analyst Kenneth Leon raised his stock price target on Fox by $7 to $41, while reiterating his “buy” rating after the latest quarterly update on Wednesday. “With low investment risk to the TV streaming wars, Fox stands out with #1 ratings for Fox Sports and Fox News,” he wrote in a note to investors. “Its long-term strategy of ‘what’s next’ has been questioned by investors, but we think Fox can grow profitably and return capital from the $7.0 billion buyback plan.”
The fact that Fox boosted its stock buyback authorization by $3 billion to $7 billion and unveiled plans for a $1 billion accelerated repurchase initiative also got much attention elsewhere. “The big news in the Fox print is the ASR (accelerated share repurchase) — likely a response to the lengthy (FanDuel majority owner) Flutter Entertainment arbitration followed by the confusion from the News Corp proposed combo,” wrote Wells Fargo’s Steven Cahall, who has an “overweight” rating and $40 price target on Fox shares.
Goldman Sachs analyst Brett Feldman, who has a “sell” rating and $27 stock price target on Fox, also highlighted that investors would have bullish takeaways from the latest earnings report. “We expect a positive reaction in the stock to reflect solid fiscal second-quarter results across both of Fox’s key segments and the announced repurchase authorization program,” he wrote.
Meanwhile, Guggenheim’s Michael Morris, who has a “buy” rating and a $40 price target, stated in a note to investors that, “Our target multiple reflects our confidence in the company’s relative position (domestic news, NFL exposure) and industry-leading subscription growth rate. … Over the longer term, we believe the company’s investments in sports gaming and ad-supported streaming will provide opportunities for growth relative to core pressures in the broader linear media ecosystem.”
And Cowen’s Doug Creutz stuck to his “market perform” rating and $36 stock price target in his report entitled “Fox Remains on Track With Solid Fiscal Second-Quarter Performance.” “We view the quarter as essentially in line with expectations,” he wrote. “Management indicated overall business trends remain healthy despite macro headwinds, helped by strength at sports and Tubi.”
Creutz sees trends in the latest quarter falling this way: “Ad strength at Tubi continues, offsetting weakness at linear entertainment.” He emphasized: “Fiscal second-quarter television advertising growth of 5 percent year-over-year was above our 2 percent estimate, driven by Tubi (+25 percent), record midterm cycle political revenues of around $250 million in the first half of fiscal year 2023 and sports (NFL, Big 10 Network, MLB and World Cup).” In a positive, management forecast nearly $600 million of advertising dollars in the current quarter “attached to the Super Bowl and also indicated that national advertising is on track to grow even ex-Super Bowl,” the Cowen expert noted.
A team of J.P. Morgan analysts also liked what they saw from Fox Corp.’s disclosure. “We view FOXA as attractively priced trading at just 6.7x our fiscal 2024E EBITDA,” the team wrote in a research note, which has Fox Corp. at a $40 price target. “Our optimism is based on the company’s affiliate renewal cycle in 2023-25, buoyed by strong ratings which should drive significant fee increases at the company’s sports/news assets. While advertising comprises a sizable portion of total company revenue today, and we expect macro headwinds to weigh on advertising demand, we believe Fox’s portfolio of assets (news, broadcast, sports) should insulate it better than peers.”
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