‘New Fox’ 10-Q Alarm For Wall Street?


Last week top Wall Street analysts at MoffettNathanson initiated coverage on “New Fox” with a Buy. “Our thesis is based on the belief that the slimmed down combination of Fox News and the Fox Broadcasting Network creates an unrivaled pair of must-have live sports and news that is set up for industry-leading top line growth for years to come,” Senior Analyst Michael Nathanson reasoned.

On Monday, the company published a 10-Q that at first glance contained a red flag.

What does the respected financial analyst have to say now?

Nathanson explained that he was concerned about guidance of a deceleration in cable affiliate fee growth through the second half of 2019.

Additionally, he said, “today’s high market value equates to a higher spin tax and thus, a bigger bill owed to Disney in the form of a one-time special dividend.”

However, upon further review, neither of these concerns impacts MoffettNathanson’s longterm view on New Fox.

Based on the 10-Q filing, it is increasing 2019 estimated revenue growth from 8.5% to 9%. That is thanks to better first-half results at both Cable and Television.

However, MoffettNathanson is lowering New Fox’s EBITDA growth estimates from -2% to -3%. Why? Cable expenses in the first half of 2019 came in higher than previously estimated.

What’s the investment implication?

“We maintain our Buy rating on Fox Corporation,” Nathanson said. “We think that too much focus on the near-term numbers clouds the view of the compelling story at New Fox. On the Television side, we would argue that investors can get paid twice as Fox’s multiple improves and EBITDA exceeds forecasts, longer term. While the Television segment may be the source of upside surprise, the sustaining driver of earnings should be Fox’s cable networks. Using a sum-of-the-parts valuation for Fox with a 10x EV/EBITDA multiple for Cable Networks and 9.3x for Television gives us our $50 price target, -$1 lower than our prior target.”