A top financial services company downgraded Fox Corporation’s stock on Monday, noting issues with the network’s viewership, earnings, and content.
An analyst with Wells Fargo downgraded shares of Fox Corp. from “equal weight” to “underweight,” lowering the price target from $35 per share to $31 per share, according to multiple reports on Monday.
“Fox News is the FOXA cash cow at [around] 80 percent of our FY24E EBITDA,” Steven Cahall, with Wells Fargo, wrote, referring to the acronym for earnings before interest, taxes, depreciation, and amortization. “Viewership is down -19% Jan-June’23 vs Jan-June’21 due to cord cutting and/or programming.”
Mr. Cahall added that “more worryingly, Fox News was 52 percent of cable news primetime viewership for 2020-22, 51 percent in Jan’23, and that has slid to a low of 38 percent in June’23 post-TC,” reported Investing.com. “[Fox News’] share of conservative news viewers has fallen from 94 percent to 84 percent.”
Fox News is worth about $11 billion, or about five times its earnings before interest, depreciation, and amortization (EBITDA), he wrote. That’s down from a previous estimate of six times, he said, noting that there are worries of a “structural decline” in overall cable news viewership across the board due to cord-cutting and demographics.
Other issues cited by Mr. Cahall included talent departure and increasing competition. “We are also not convinced that cable news works well in streaming, so our 8 percent view on annual cord-cutting presents ongoing earnings risks,” he said, Seeking Alpha reported.
There are also broader industry challenges ahead for Fox Corporation, the analyst said.
“Fox gets about 50 percent of fiscal year 2023 and 2024 estimated revenue from U.S. affiliate fees—among the highest in our media coverage universe,” Mr. Cahall pointed out. “We estimate 7-8 percent cord-cutting, with a downside bias.”
And he warned: “Fox Cable could soon go ex-growth on EBITDA like we’ve seen for peer linear nets. TV has better topline growth, but less ability to reduce costs due to sports rights.”
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