Macquarie Downgrades 21st Century Fox On 2016 'Uncertainty,' Wonders If Company Preparing For Acquisitions

In a report published Monday, Macquarie analyst Tim Nollen downgraded the rating on Twenty-First Century Fox Inc FOXA from Outperform to Neutral, while reducing the price target from $40 to $34, citing uncertainty around the company's 2016 earnings. More unfavorable foreign exchange rates and higher content investments by Twenty-First Century Fox have pushed down the consensus expectations for the company's 2016 EBITDA to below the official guidance of mid-$7 billion. Pointing out that programming costs were rising, analyst Tim Nollen mentioned, "Pressure remains on Fox Broadcast. Star India will continue to expand sports rights through 2017, and 33% owned Hulu is getting more aggressive with licensing deals." The company has $9 billion in cash and its current buyback plan expires in August 2015. Twenty-First Century Fox may, thus, be looking for fresh acquisitions. In the report Macquarie noted, "We think deals may be more likely with the Murdochs now in complete managerial control. This isn't necessarily bad-in fact its' most likely good over the long haul-bit assets aren't cheap and could bring near-term dilution." The evolution of OTT streaming services and cord cutting could have a "relatively negative impact on Fox," Nollen said. The EPS estimates for FY15 and FY16 have been reduced from $1.72 to $1.69 and from $1.95 to $1.89, respectively.