Fox Corp. Stock Drops as Analysts Discuss Possible Election Fallout

Lachlan Murdoch
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Lachlan Murdoch

"Is the Trump News Network to blame?" wonders one Wall Street observer, while another one mentions "ratings implications with a potential change in administration" as an "overhang."

Fox Corp.'s latest quarterly financials, reported Tuesday, drew positive reviews from Wall Street analysts. But the company's stock took a hit Wednesday despite broader market gains, as analysts discussed the potential fallout of the U.S. elections.

As of 12:45 p.m. ET, Fox's shares were down 6.7 percent at $25.22. Over the past year, the stock has traded between $19.81 and $39.74.

"Fiscal first-quarter results beat on strong ad and shifted costs," UBS analyst John Hodulik said in his earnings review. But he called the election outcome "an overhang." Explained the analyst: "Ratings implications with a potential change in administration and increased competition at Fox News … remain overhangs." Hodulik noted, for example, that fourth-quarter ratings are 90 percent-plus "above pre-Trump levels from '15."

Cannonball Research analyst Vasily Karasyov similarly told THR: "Some believe the quarter was as good as it gets and things will get worse from here."

Meanwhile, MoffettNathanson analyst Michael Nathanson wondered in the title of a Wednesday report: "Is the Trump News Network to blame?"

During Tuesday's earnings conference call, Fox CEO and executive chairman Lachlan Murdoch fielded an analyst question about how he would react if President Donald Trump started a news network to compete with other cable news networks, including Fox News. "We love competition," he responded. "We have always thrived with competition. And we have strong competition now."

Nathanson had already noticed stock weakness on Tuesday and was surprised by it. "After reporting strong revenue and earnings before interest, taxes, depreciation and amortization results for the first fiscal quarter of 2021, which included an acceleration of affiliate fees, Fox’s stock managed to somehow underperform their peer group over the course of the trading day," he wrote. "So, while cord-cutting and advertising trends were better, there appears to be something below the surface that is torpedoing the stock. That something might be the potential launch of a new Trump News Network."

Added Nathanson: "As we write this note, while we have no idea of what will be the outcome of the 2020 U.S. presidential election, we do know that investors are worried that if President Trump loses this election, he will seek to launch his own news network. Given the singular financial importance of Fox News to Fox Corp., the fear of a new rival competing with Fox News has created a new bearish narrative that appears to be restraining Fox’s equity momentum."