On Tuesday, Goldman Sachs reaffirmed its Conviction Buy rating on Fox Corporation (NASDAQ:FOXA) with a price target of $46.00.
The firm anticipates FOX Corp to achieve a first-quarter earnings before interest, taxes, depreciation, and amortization (EBITDA) for fiscal year 2025 of approximately $874 million. This projection is consistent with market expectations, which forecast an EBITDA of $882 million.
The analysis suggests that within FOX Corp's Cable Networks division, there will be modest increases in both fees and advertising revenues, with a 1% rise in fees and a 2% increase in ads. This is partly due to the strong performance of Fox News Channel, which is expected to balance out the timing challenges faced by soccer sports programming when compared to the previous year's Women’s World Cup. The Television segment is also predicted to experience similar timing headwinds from soccer sports. However, these are likely to be more than compensated for by the influx of political advertising revenue, estimated to grow by $90 million year-over-year, and the addition of an extra NFL game.
Goldman Sachs' forecasts for FOX Corp's EBITDA for fiscal years 2025 and 2026 are $3.3 billion and $3.0 billion, respectively. These figures are 7% and 4% higher than the consensus estimates. The firm's positive outlook is based on FOX Corp's effective sports cost management, including contracts with WWE and NASCAR, strategic timing of major events such as the Super Bowl and election coverage, and the strength of its network portfolio.
"FOXA's sports and news focused portfolio makes it more resilient to cord cutting and other linear TV pressures relative to general entertainment peers, while Fox News Channel and its local TV stations should see engagement uplifts and increased advertising revenue from election coverage," said Goldman.
The firm highlights that FOX Corp's valuation is attractive, trading at approximately 5 times enterprise value to EBITDA, especially when considering the company's roughly $5 billion in net investments.
In other recent news, significant developments have been unfolding within Rupert Murdoch's media empire, including News Corp (NASDAQ:NWSA) and Fox Corp. Murdoch, the 93-year-old media mogul, recently concluded a pivotal hearing in Nevada, seeking amendments to the family trust to ensure the control of his media companies remains with his eldest son, Lachlan Murdoch, after his passing. The trust, which holds approximately 40% of the voting shares in both News Corp and Fox, has become a focal point of contention regarding succession plans. The proposed amendment aims to prevent any interference from Lachlan's siblings, who reportedly hold more politically moderate views.
Meanwhile, Seaport Global Securities has downgraded its rating of Fox Corp from Buy to Neutral. This adjustment follows an analysis of the political and television station landscape, with particular attention to areas where political advertising spending is likely to be significant. Despite Fox Corp's potential to benefit from this spending, Seaport's rating change reflects the current valuation of Fox Corp shares, suggesting limited upside potential in the near term.
InvestingPro Insights
Goldman Sachs' confidence in FOX Corporation (NASDAQ:FOXA) is mirrored by several positive indicators from InvestingPro. Notably, FOXA's management has demonstrated a commitment to shareholder value through aggressive share buybacks, as highlighted by an InvestingPro Tip. This is a strategy that can often signal management's belief in the company's undervalued stock and can lead to an increase in the value of remaining shares.
Furthermore, FOXA's consistent practice of raising its dividend for four consecutive years, another InvestingPro Tip, reinforces its attractiveness to income-focused investors. This consistent dividend growth, along with a current dividend yield of 1.31%, provides an additional stream of return for shareholders.
From a valuation perspective, FOXA's P/E ratio stands at a competitive 12, with an adjusted P/E ratio for the last twelve months as of Q4 2024 at 11.65. This positions FOXA as trading at a low P/E ratio relative to near-term earnings growth, which could indicate that the stock is undervalued compared to its growth potential. Additionally, the company's solid financial performance is underlined by a robust gross profit margin of 34.99% for the same period.
Investors may also take note of FOXA's strong return over the last three months, with a price total return of 20.09%, and an even more impressive six-month return of 37.76%. The company's stock is trading near its 52-week high, at 98.87% of this peak, which could suggest a sustained bullish trend.
For those interested in deeper analysis and more InvestingPro Tips, there are 10 additional insights available on InvestingPro, which can be accessed to inform investment decisions further.
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