Why Fox's Pivot To Sports Betting Is Turning Wells Fargo Bullish


Fox Corporation FOXA shares were gaining ground Wednesday after an analyst at Wells Fargo Securities upgraded the stock. 

The Fox Analyst: Analyst Steven Cahall upgraded Fox from Equal-Weight to Overweight and lifted the price target from $42 to $47.

The Fox Takeaways: Fox is a media network company with a sports betting future, Cahall said in the upgrade note. 

The company's investments and partnerships indicate organic and inorganic opportunities to build a sportsbook around its investments in Fox Bet, The Stars Group and Flutter, the analyst said. 

The sports betting market is growing fast, and Fox is the No. 2 holder of U.S. sports rights, he said.

That combination should prove uniquely attractive to investors, Cahall said. 

"We see the narrative on FOXA gradually shifting towards our sports betting thesis." 

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The evidence includes investments in Credible Labs, FOX Bet and Flutter; becoming a NFL sportsbook operator; and an 18.6% option in FanDuel, the analyst said.

Over the coming years, Fox will be a "sports betting stock with media network assets" versus its current positioning as a "media networks business with some sports betting investments," he said. 

The range of outcomes from sports betting for Fox are all accretive, Cahall said. The value realization from FOX Bet using market comps, according to the analyst, is about 5% accretive.

Secondly, if Fox wins arbitration, there's an additional 12% accretion arbitrage, leading to 17% accretion from just buying in existing options, he said.

The third opportunity stems from Fox and Flutter potentially building a new company longer-term by combining FanDuel U.S. and Fox's non-news network assets, Cahall said. 

"Under such a NewCo (with Fox News moving to News Corp), we estimate FOXA shareholders could own ~38% and result in 17% equity accretion and 36% accretion," the analyst said.

A potential share price accretion of 17%-34% over the next couple of years is likely from the company's pivot to sports betting, according to Wells Fargo.

FOXA Price Action: At last check, Fox shares were up 3.68% to $37.94. 

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Posted In: Analyst ColorUpgradesPrice TargetSportsAnalyst RatingsGeneralsports bettingSteven CahallWells Fargo
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