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Entertainment company 21st Century Fox saw its stock rise 4.8 percent in its first week to close Friday at $30.38. Meanwhile, shares of the News Corp publishing company gained 2.7 percent to $15.66.
The split of Murdoch’s media empire was completed late last Friday. In so-called when-issued trading ahead of the separation, the Fox stock had closed last week at $28.99. On the same basis, the new News Corp had finished last week at $15.25. The lack of major price swings this week may be a sign that investors are comfortable with the current valuations.
But Wall Street still sees more gains ahead for the entertainment business, with many having stock price targets on it that suggest well more than 10 percent upside in the next 12 months.
“The stock has traded up most of the week, no surprise, and we think it will likely continue that way,” said Credit Suisse analyst Michael Senno. “We like the stock. It has great growth potential. The story will continue to play out, and we continue to expect it to rise.”
One key upcoming event that Senno sees as a potential driver for the stock is an investor day in August. “We expect clearer guidance for the fiscal year,” he said. Commentary on possible shareholder-return plans and color on investments in such things as the Fox Sports 1 sports network, which will negatively affect profit growth near-term, are expected at the event.
Morgan Stanley analyst Benjamin Swinburne earlier this week initiated coverage on 21st Century Fox with an “overweight” rating, similar to other analysts who have been calling the stock a “buy.” He put a $34 price target on shares.
“21st Century Fox replaces News Corp. on the Morgan Stanley Best Ideas List” of favorite stocks, he wrote in a report. “Recurring TV subscription revenues from Fox’s global content portfolio should drive industry-leading [operating cash flow] growth.”
Calling the split a “transformative event,” Swinburne added: “After 60 years of building a global media portfolio that began with an Australian newspaper, the separation of 21st Century Fox from News Corporation represents an important milestone. The separation in effect creates in Fox a focused TV and film company of global scale.”
Both companies should benefit from “increased management focus on their respective businesses, while also allowing each to optimize and employ an appropriate capital structure,” he said.
Evercore Partners analyst Alan Gould also initiated coverage on the stock with an “overweight” rating and a $34 price target. “Fox is the quickest growing of the entertainment conglomerates with an estimated 21 percent earnings per share growth rate,” he highlighted.
And Senno launched his coverage of the entertainment stock with the same $34 target price and an “outperform” rating, citing “our estimates for peer-leading [operating cash flow] growth driven by U.S. and international cable networks” and “retrans revenue with upside potential at film and [satellite TV businesses].”
Meanwhile, Wells Fargo analyst Marci Ryvicker mid-week launched her coverage of the new News Corp with the same bullish “outperform” rating and a $18 to $20 stock price range.
“After our extensive valuation analysis, we think there’s compelling long-term value in what we believe is a mispriced stock,” she wrote. “Our sense is that investors aren’t giving full credit to News Corp’s substantial hidden value (Australia’s digital real estate assets and Foxtel).”
She added: “We think a conservative management team has set low expectations for the newspaper business, which could provide attractive upside potential should newspaper margins start to expand post cost cuts and a common publishing system.”
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