How Low Can Fox Go? UBS Answers

In a report published Thursday, UBS analyst Doug Mitchelson maintained a Buy rating on Twenty-First Century Fox Inc FOXA, with a price target of $44. "Press reports have indicated that Fox has finally started to cut upfront deals in a range of flat to -2% for CPMs, and we believe that is correct, though only a few agencies are complete (mostly cut last week)," analyst Doug Mitchelson said. As was expected, Fox has started offering discounts to clear inventory, with pricing having has risen to represent about a 10 percent premium versus peers, which is unsustainable in the current soft TV ad marketplace. UBS maintains the CPM estimate of a 1 percent decline for FY16 for the Fox Network. "We do not believe Fox's pricing is indicative of the marketplace given this dynamic; we still expect the market will clear at 2% increases (vs. 5%-10% asks), closing about one half of Fox's price premium," the report mentioned. The EBITDA and EPS estimates for FY16 have been reduced by $250m to $7.050b and by $0.16 to $1.91, respectively. Fox had indicated that its prior FY16 EBITDA guidance of "mid-$7's" is challenged. Mitchelson commented, "…we see limited further downside given greater visibility on bottoms up metrics for FY'16."