Twenty-First Century Fox: Good Run On Higher Affiliate Fees

On Aug 22, 2014, we issued an updated research report on Twenty-First Century Fox Inc (NASDAQ:FOX) following the company’s fourth-quarter fiscal 2014 results.

The company’s adjusted earnings of 42 cents per share topped the Zacks Consensus Estimate of 38 cents, rising nearly 35.5% year over year. Moreover, the media conglomerate reported a 17% year-over-year increase in total revenue to $8,424 million, which was way ahead of the Zacks Consensus Estimate of $8,011 million. Fantastic box-office response to its movies and a continuous rise in affiliate fees helped 21st Century Fox to close fiscal 2014 on a high note.

Affiliate fees have portrayed a rising trend in the last couple of years. A dominant source of revenue for Cable Network Programming segment, Affiliate fees are a major contributor to the total revenue. In fiscal 2014, affiliate fees contributed 28.2% to total revenues; in fiscal 2013 it represented 28% of the total revenue; and in fiscal 2012 and 2011 it contributed 25% and 22%, respectively.

Following robust quarterly performance, management provided an upbeat outlook for Cable Network Programming, Filmed Entertainment and Television segments, thereby raising total EBITDA expectations for fiscal 2015. In fiscal 2015, EBITDA is expected to grow in the high single-digit range over the $6.29-billion base of fiscal 2014. Cable segment will lead the way with high single to low double-digit EBITDA growth in fiscal 2015.

In addition, after publicly abandoning its Time Warner Cable Inc (NYSE:TWC) bid and denying any other potential near-term acquisitions, Twenty-First Century Fox stated that maximizing shareholder returns is its top priority. In Aug 2014, the company approved a new share buyback program worth $6 billion to be executed over a 12-month time frame, underscoring the company’s priority to maximize shareholders’ gain. This replaces the earlier $4-billion share buyback plan announced in Aug 2013.

However, expenses are set to rise at Twenty First Century Fox, given the higher programming costs (MLB, NASCAR, and Cricket World Cup), along with consolidation of YES Network. At the same time, currency fluctuations (mostly from Latin American countries) will remain a drag.

Currently, Twenty-First Century Fox carries a Zacks Rank #3 (Hold).

Key Picks from the Sector

Other better-ranked stocks in the same sector include The Walt Disney Company (NYSE:DIS) and Lions Gate Entertainment (NYSE:LGF). Both carry a Zacks Rank #2 (Buy).

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