In the Technology sector, one of the most interesting trends to follow for the past few years has come from streaming media. Services like Netflix, Amazon Prime and Hulu were the early entrants into this fast-growing segment that has since seen a number of major broadcasting companies see the light and jump into the fray with services of their own. That is part of the reason that in the last couple of years, the broadcasting industry has also seen a lot of consolidation. The acquisition in 2018 of Time Warner by AT&T (T), for example prompted the Walt Disney Co. (DIS) to jump into, and win a bidding war with Comcast Corporation (CMSCA) over coveted assets from 21st Century Fox. While the Time Warner acquisition hasn’t worked out as planned for AT&T, who have since announced plans to spin WarnerMedia into a separate company, Disney’s acquisition of the majority of 21st Century Fox’s entertainment assets only helped to broaden the already massive library it could offer to subscribers for its Disney+ streaming service.
Drawing less attention in the aftermath of all of that merger activity is Fox Corp (FOX), the independent company that began trading publicly in 2019 and retained the Fox Broadcasting Company, Fox Television Stations, Fox News Media, and Fox Sports in the U.S. The new organization was leaner and more focused on news, bringing the company back to the roots that founder and executive chairman Rupert Murdoch preferred to focus on. This is a company with a solid balance sheet that has remained pretty stable, even during the economic turmoil of the past year and a half. Does that also make the stock a useful value? Let’s find out.
Fundamental and Value Profile
Fox Corporation is a news, sports and entertainment company. The Company operates through three segments: Cable Network Programming, Television and Other, Corporate and Eliminations. The Cable Network Programming segment consists of the production and licensing of news and sports content distributed primarily through cable television systems, direct broadcast satellite operators, telecommunication companies and online video distributors, primarily in the United States. The Company’s Television segment consists of the acquisition, marketing and distribution of broadcast network programming nationally under the FOX brand. Its Other, Corporate and Eliminations segment includes FOX Studios lot, which provides television and film production services along with office space, studio operation services. FOX has a current market cap of $21 billion.
Earnings and Sales Growth: Over the last twelve months, earnings decline -5.4%, while sales also moved -6.5% lower. In the last quarter, earnings improved by 450% while Revenues were -21.3% lower. FOX’s Net Income versus Revenue is healthy, at 16.23% over the last twelve months and strengthening to 17.64% in the last quarter.
Free Cash Flow: FOX’s Free Cash Flow is healthy, at about $2.4 billion. That number increased slightly from the quarter prior, when Free Cash Flow was $2.36 billion, but has also grown over the last twelve months, when it was a little over $2 billion. The current number translates to a Free Cash Flow Yield of 11.28%.
Debt to Equity: FOX has a debt/equity ratio of .65, which is conservative and a good reflection of the company’s approach to leverage. Their balance sheet shows about $5.7 billion in cash and liquid assets against about $7.2 billion in long-term debt. Their operating profile and high liquidity are good indications FOX has the financial flexibility to adapt to ongoing changes in the markets in which it operates.
Dividend: FOX pays an annual dividend of $.46 per share, which at its current price translates to a dividend yield of about 1.27%.
Price/Book Ratio: there are a lot of ways to measure how much a stock should be worth; but I like to work with a combination of Price/Book and Price/Cash Flow analysis. Together, these measurements provide a long-term, fair value target at about $45.50 per share. That means that the stock is currently trading at a useful discount, with 25% upside from the stock’s current price.
Technical Profile
Here’s a look at the stock’s latest technical chart.
Current Price Action/Trends and Pivots: The chart above covers the last year of price activity; the diagonal red line traces the stock’s upward trend from its July 2020 low around $24 to its March peak at around $42. It also provides the baseline for the Fibonacci retracement lines shown on the right side of the chart. From the peak, the stock dropped back to find support at around $35 in late April, and has settled into a consolidation range around that support, with immediate resistance sitting at around $37.50. A drop below support at $35 could see the stock drop to about $33 to next support, while a push above $37.50 should see the stock rally to test its 52-week high above $40.
Near-term Keys: The stock’s fundamentals are solid and provide a useful base to establish the stock’s value proposition, which is very interesting at its current price. If you prefer to work with shorter-term trading strategies, you could use a break above the stock’s immediate resistance around $37.50 as a signal to buy the stock or work with call options, with a near-term exit target at around $42. There could also be a bearish opportunity is the stock falls below $35 to see a good signal to short the stock or to buy put options. In that case, the exit target would be between $33 and $31 per share.