After the separation of News Corp. into two companies, analysts said they like the way 21st Century Fox looks.
“Following the spin of the newspaper assets, the long-term cash flow growth trajectory of Fox will be among the upper end of the peer group, led by one of the fastest growing international cable net assets in the industry,” said John Janedis of UBS in a research note Monday.
Usually conservative regarding costs, analysts endorsed the company’s investments in new networks Fox Sports 1 and FXX. “We expect these investments to yield solid long-term returns, driving mid-teens [earnings] growth in fiscal year 2015-16,” said Michael Senno of Credit Suisse.
Marci Ryvicker of Wells Fargo said that while starting up the national sports network will dilute Fox’s earnings at first, she values the FS1 business at $4 a share, and expects it to generate $3 billion in revenue and $1 billion in earnings in three to five years.
Janedis expects retrans and reverse comp revenues to approach $600 million in fiscal 2014, “which at a very high margin will help offset pressures from ratings declines at Fox [broadcasting], allowing for TV segment EBIT growth.”
“Don’t give up on Fox broadcast just yet,” added Ryvicker. “The Fox network clearly had a disappointing 2012-13 primetime season, but we like the retrans/reverse comp opportunity (we forecast $1B by fiscal 2016) and the very easy comps plus the up-coming primetime season looks promising, in our view.”
The investment community will get more details on Fox management’s plans for the company at an investment day to be held Aug. 8.
Until then, the analysts have set a target price for 21st Century Fox at between $30 and $36 a share. On its first day of normal trading, shares closed at $29.40, up from $29.04 at the opening.