Analyst Todd Juenger of Sanford C. Bernstein downgraded 21st Century Fox stock to market perform and lowered his forecast for the media company’s earnings.
Juenger, who liked Fox despite a bearish view of the TV business, cited several reasons for his re-evalution, including higher cable network expenses and possible competition to the company’s cash cow, Fox News Channel.
The first item on Juenger’s list was Star India, where Juenger lowered his estimate for earnings in 2020 from $1 billion to $700 million. Juenger says that investors see long-term potential in Star India but that potential won’t materialize by the end of the decade.
He also lowered his forecast for domestic affiliate fees, international affiliate fees and advertising.
Juenger noted that Fox has been repeatedly investing in its cable networks, whether Fox Sports 1 or National Geographic, and saying that in coming years cost would go down and earnings would rise. But that pattern has repeated itself so frequently, Juenger says that investors can no longer count on the upside.
Among the costs Juenger sees rising are sports rights, particularly with the UFC and Big 10 coming due. Juenger expects the UFC to seek a particularly hard bargain having recently been bought by WME-IMG.
There are other risks at Fox that Juenger says he has not figured into his estimates. With Chairman Roger Ailes forced out over sexual harassment charges, Juenger sees the potential for a right wing challenger to Fox News, possibly by Donald Trump after the elections. He also notes that Fox’s YES Network is still off Comcast and there is no end in sight to the dispute despite the Yankee’s better play of late.
21st Century Fox has long traded below what analysts believe the sum of its parts are worth because of concern that former CEO Rupert Murdoch could launch an expensive takeover bid—possibly for Sky.
“Even if Fox delivers better operating results than we now predict, we still believe the stock will struggle to work until there are many quarters of consistent stability,” Juenger said.