Summary
- Since April, the advertising market has been slowly recovering sequentially, so Fox’s advertising revenues should return to its normal levels by the end of this year.
- The upcoming Presidential elections along with the return of sports events will serve as the biggest catalysts for growth for the business in the upcoming months.
- Fox continues to be one of the biggest media picks in my portfolio and I’m still confident in the company’s ability to create shareholder value in the long-term.
Despite suffering a decline of its advertising business in Q4, Fox Corporation (FOXA) reported successful FY20 results, as its revenues for the year were up 8% Y/Y. Since April, the advertising market has been slowly recovering sequentially, so advertising revenues should return to its normal levels by the end of this year. In addition, the upcoming Presidential elections along with the return of sports events will serve as the biggest catalysts for growth for the business in the upcoming months. With a strong balance sheet and a limited downside, Fox continues to be one of the biggest media picks in my portfolio and I’m still confident in the company’s ability to create shareholder value in the long-term.
More Room for Growth
Recently, Fox reported its first fiscal year results as a standalone company. While the Murdoch family sold the majority of the company’s entertainment assets to Disney (DIS) last year, it decided to keep its news and sports offerings to itself. By being a leaner organization now, Fox is better positioned to tackle the challenges of the ever-changing media landscape. As of today, the company’s biggest sources of revenue are its affiliate and advertising businesses. Currently, Fox is actively expanding its cable and TV offerings and its biggest advantage at the moment is its loyal customer base. In July, Fox’s news channel averaged 3.2 million primetime viewers, while its top shows ‘Tucker Carlson Tonight’ and ‘Hannity’ had averaged more than 4 million viewers in the last few months.
Despite its popularity, Fox’s Q4 revenues were $2.42 billion, down 3.6% Y/Y, as the growth of the affiliate business wasn’t able to fully offset the decline of the advertising business. However, while advertising declined 22% Y/Y, it was above the estimated decline of 25% to 30% Y/Y. As for the full-year results, the situation is better. The company’s total revenues during the year were up 8% Y/Y to $12.3 billion, mostly thanks to the growth of the TV segment, which was up 11% Y/Y to $6.66 billion, while the cable segment was up 2% Y/Y to $5.49 billion.
At the end of June, Fox had $4.6 billion in cash, while its long-term debt was $7.95 billion. Despite the abundance of debt, the company will be able to service its debt without any problems, since its interest coverage ratio is nearly 7x and there are no debt maturities in the foreseeable future. At the same time, despite the decline of its business in Q4, the company remained profitable and recently it decided to pay a quarterly dividend of $0.23 per share. To be eligible for dividends, you need to purchase the company’s stock before September 2. At the same time, Fox is not overvalued to its peers, as its forward P/E of 12.71x is in-line with the industry’s median, while its EV/Revenue ratio of 1.58x is below its major competitors. Considering all of this, buying Fox’s stock at the current levels makes sense, as the downside at this stage is already limited and there’s a high chance that more shareholder value will be created in the upcoming months.
