On Tuesday, Goldman Sachs initiated coverage on FOX Corp. (NASDAQ:FOXA), assigning a Buy rating and setting a price target of $42.00 for the media company's shares. The firm's analysis suggests that despite headwinds from cord cutting and a decline in linear viewership, FOX Corp. is undervalued by the market. The evaluation points to the resilience of FOX Corp.'s Cable Network and Television EBITDA, as well as the value of strategic and unconsolidated assets that are not fully appreciated by investors.
FOX Corp.'s focus on sports and news content is seen as a strength, offering a buffer against the industry-wide trend of cord-cutting. The company's strategy in managing sports broadcasting rights is expected to support continued affiliate fee growth while navigating the challenges of rising costs associated with these rights. Goldman Sachs anticipates that FOX Corp. will effectively manage EBITDA margin pressure resulting from these increased sports rights expenses.
The firm also forecasts a boost for FOX Corp. from the upcoming 2024 political season. This period is projected to generate an additional $280 million in political advertising spend, which would be an increase from the $250 million seen during the 2020 presidential election. This expected surge in political spending is considered a key factor in the near-term upside to consensus estimates for the fiscal year 2025.
Furthermore, Goldman Sachs believes the market has not fully recognized the value of FOX Corp.'s unconsolidated net assets. These assets, including the option to acquire a 18.6% stake in FanDuel, a 4.3 million share stake in FLTR, the company's Los Angeles studio lot, and a tax shield from the 21CF-DIS transaction, are estimated by the firm to be worth $5.5 billion. This figure represents 36% of the standalone implied enterprise value based on a 5X next twelve months plus one year EBITDA multiple.
In summary, Goldman Sachs' initiation of coverage on FOX Corp. reflects a positive outlook on the company's valuation, strategic assets, and potential for earnings growth, despite existing challenges in the media landscape. The firm's $42.00 price target suggests confidence in FOX Corp.'s ability to navigate the evolving market and capitalize on upcoming opportunities.
In other recent news, FOX Corp continues to navigate the challenging media landscape, maintaining a hold rating by Argus and demonstrating resilience in its financial performance.
The company's earnings and revenue results have been a focal point for analysts, with Deutsche Bank, Rosenblatt, and CFRA all raising their price targets for the media giant. FOX Corp's robust EBITDA increase, controlled expenses, and slight uptick in affiliate revenue across both Cable and TV segments have been key drivers in surpassing expectations.
The company has also been recognized for its strategic investments, particularly its call option in FanDuel and ownership stake in Flutter Entertainment, which have significantly grown in value. Despite facing a weak television advertising market and the ongoing fragmentation of the traditional cable television bundle, FOX Corp's focus on sports and news programming has proven to be a pillar of stability.
FOX Corp's recent financial results, including a net income of $666 million and total revenue of $3.45 billion, have also been highlighted. The company's operating expenses saw a substantial decrease of nearly 25% for the quarter, contributing to its financial success. Despite a decline in ad revenue, FOX Corp managed to surpass Wall Street's profit forecasts.
In other recent developments, FOX Corp announced a sports-streaming joint venture with The Walt Disney Company (NYSE:DIS) and Warner Bros Discovery (NASDAQ:WBD), aiming to provide streaming services for major sports leagues and events.
InvestingPro Insights
With Goldman Sachs providing a favorable analysis of FOX Corp.'s prospects, the real-time metrics from InvestingPro reinforce the investment thesis. FOX Corp.'s management has been proactive in enhancing shareholder value, evident from an aggressive share buyback strategy and a high shareholder yield. Additionally, the company has demonstrated commitment to returning value to shareholders, having raised its dividend for three consecutive years.
The financial health of FOX Corp. is underscored by its P/E ratio of 10.07, which is attractive when paired with its near-term earnings growth, and a PEG ratio of just 0.21, suggesting that the stock may be undervalued relative to its earnings growth potential. Moreover, with a price/book ratio of 1.47 and a solid operating income margin of 17.26%, the company's fundamentals appear robust. These data points align with the Goldman Sachs' price target, indicating that the market may indeed be undervalizing FOX Corp.'s earnings capacity and strategic initiatives.
For readers looking to delve deeper into FOX Corp.'s financials and future prospects, InvestingPro provides a wealth of additional insights. There are 11 more InvestingPro Tips available, which can be accessed by visiting https://www.investing.com/pro/FOXA. To enhance your investment research, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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