RBC Downgrades Old Fox, Waits For New Fox And 'Potentially Compelling Investment Opportunity'

Twenty-First Century Fox Inc FOXA beat bottom- and top-line estimates in its Wednesday earnings report, but with the Walt Disney Co DIS deal on its way to closing and no other value-boosting bids in sight, Fox is has struck its near-term peak, according to RBC Capital Markets.

The Rating

Analyst Steven Cahall downgraded Fox from Outperform to Sector Perform and raised the price target from $45 to $49.

The Thesis

Fox reported strong earnings before interest, tax, depreciation and amortization driven by film and cable growth. The latter category offset weakness in TV with growth in domestic affiliate revenue driven by pricing and subscriber gains.

Fox hasn’t issued guidance yet for its slimmer, post-merger assets, and while RBC anticipates upside to the “New Fox,” it sees limited upside in the current configuration, Cahall said in a Thursday note. (See the analyst's track record here.) 

“FOXA is trading near the implied M&A price, and we don't see further bids emerging,” the analyst said “New FOXA looks undervalued, but the opportunity doesn't create enough upside in total FOXA to keep us involved.”

Based on the Disney transaction, RBC estimates “New Fox” will yield “attractive” 14-percent free cash flow, but not for some time.

“We expect to continue focusing on new FOXA as a potentially compelling investment opportunity, with more information forthcoming this fall,” Cahall said. 

Price Action

Fox shares were trading up 0.62 percent to $45.74 at the time of publication Thursday. 

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