Though Twenty-First Century Fox Inc (NYSE:FOXA) has certainly had a rough go of it lately, its stock is a compelling value for shareholders.
The sexual harassment scandal that cost Fox News’ biggest star — Bill O’Reilly — his job will eventually die down. FOXA likely will prevail in its nasty political fight in the U.K. over its plan to assume total control over satellite TV provider Sky in a $14 billion deal.
To be sure, the earnings report on May 10 wasn’t stellar. Earnings of 54 cents per share beat expectations for 48 cents, but revenue of $7.56 billion missed the consensus by $70 million.
Also, FOXA is facing secular headwinds in media sector that are worrying Wall Street, such as the rise of cord-cutters and declines in ratings at cable networks — Fox noted dropping ratings at National Geographic — along with increasing costs for sports broadcast rights. But there are reasons to be optimistic about its future.
Bright Spots for FOXA Stock
Let’s consider Fox News, which, as of April, was the most-watched cable network for 10 straight months even after losing some of its biggest stars, such as Megyn Kelly and Greta Van Susteren. While the loss of O’Reilly, the network’s biggest star, will sting for a while, keep in mind that Fox has a deep bench of talent and a fiercely loyal audience, which includes several of my relatives.
Neither acting CEO Rupert Murdoch, who is running Fox News in the wake of the ouster of Roger Ailes for sexual harassment, nor his sons James and Lachlan, who have assumed top management positions at FOXA, are going to mess with Fox’s conservative editorial stance since the channel generates about $1.5 billion in annual profit.
The company’s other cable networks include the critically regarded FX, whose line-up includes “The Americans,” a drama about Soviet spies operating in the U.S. during the 1970s. Fox Sports 1 is closing the ratings gap on its rival ESPN, which is owned by Walt Disney Co (NYSE:DIS). Fox Business Channel also has topped Comcast Corporation’s (NASDAQ:CMCSA) CNBC in total viewers during the business day for five straight months. The NFL was also noted as a boon for the company this quarter — especially the Super Bowl.
As for the Sky TV part, according to a statement, the company is still confident that it “will be approved by the end of the calendar year following a thorough review process.”
FOX’s 20th Century Fox studio business has an impressive lineup of movies scheduled for this year including “Alien: Covenant,” “Captain Underpants” and the latest Steven Spielberg epic whose title hasn’t been officially released. The company’s television business will benefit from the Sky deal and if FOXA and Blackstone Group succeed as expected in the takeover battle for station owner Tribune Media Co (NYSE:TRCO).
Fox and the Perils of Media Stocks
Though the challenges facing media companies are serious and Rupert Murdoch hasn’t shown much interest in shareholders over the decades, FOXA stock is a good contrarian play. Shares have lost about 3% this year, underperforming it peers such as Walt Disney and Viacom, Inc. (NASDAQ:VIAB). It trades at a multiple of about 18, which appears to be reasonable versus its peers. The average 52-week price target is $33.75, about 23% above where it recently traded.
Shareholders will also benefit as the younger Murdochs move the company kicking and screaming into the 21st century.
As of this writing, Jonathan Berr does not own shares of the aforementioned stocks.
