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Earnings Moved Fox Stock, but It Still Has Plenty of Room to Run

Jonathan Berr

Fox (NASDAQ:FOXA) reported its first quarterly results since its $71.3 billion entertainment division asset sale closed and investors liked what they saw. Fox stock got a nice initial boost on the news.

fox sotck

Source: Fox

Net income rose 16 percent to $529 million, or 86 cents per share, compared with $457 million, or 76 cents, a year earlier. Revenue gained 12 percent to $2.75 billion, helped by gains in advertising and affiliate fees.

On an adjusted basis, FOXA earned 76 cents, beating the average forecast of Wall Street analysts that called for earnings per share of 67 cents. Forecasts called for sales of $2.7 billion.

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“Our first quarterly results as Fox Corporation demonstrate the strength of our businesses as we delivered strong top-line growth across our operating segments and across our key revenue categories,” CEO Lachlan Murdoch said in a press release.

Strong Start for Fox Stock

The company’s Cable Network Programming reported revenue of $1.38 billion, an increase of 4% from the year-earlier period, as segment EBITDA rose 7% to $741 million. Advertising revenue in the business rose 4%, spurred by higher digital sales at Fox News and stronger ratings at its FS1 sports channel.  

These results indicate that the advertiser boycotts organized by Fox News critics aren’t seriously hurting the company’s bottom line.  Fox News finished April as the most-watched basic cable channel for the 34th straight month. The company will make a ton of money on the 2020 presidential election which is shaping up to be the nastiest in recent memory.

Thanks to an additional NFL playoff game and higher ratings at Fox Entertainment spurred by “The Masked Singer,” advertising revenue at FOXA’s Television business rose 10 percent. The division, which includes the Fox broadcast network and its 28 local television stations, also benefitted from a 29 percent increase in affiliate revenue. Sales overall rose 20 percent to $1.37  billion while segment EBITDA surged 22 percent to $99 million.

Fox Stock Has an Attractive Valuation

Media tycoon Rupert Murdoch, who controls FOXA through a dual-class stock ownership structure, is unpredictable. Many in the media world still are shocked that he decided to sell off a good portion of the media empire that he spent decades acquiring. The jury is still out if he made the right call.

Though his son Lachlan is Fox’s chairman and chief executive officer, Rupert Murdoch’s presence looms large over the company and affects the value of FOXA stock. The shares trade at five times last year’s earnings and 16 times this year’s earnings. Wall Street analysts have an average 52-week price target on FOXA stock of $51, a potential upside of more than 34 percent. Investors should add FOXA to their portfolios because the stock won’t stay cheap forever.

The good news for FOXA continued when Lachlan Murdoch indicated that the company had no interest in reuniting with its former corporate sibling News Corp. (NASDAQ:NWSA), the corporate parent of Murdoch’s publishing assets. This announcement is good news for shareholders since a deal, which Rupert Murdoch had hinted in the past was a possibility, would have been a wrong move.

Jonathan Berr doesn’t own shares of any of the companies listed in this post.

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