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Can Twenty-First Century Fox (FOXA) Keep Its Bull Run Alive?

Published 04/10/2017, 10:13 PM
Updated 07/09/2023, 06:31 AM

Twenty-First Century Fox, Inc. (NASDAQ:FOXA) has been riding high on robust Cable Network Programming, shareholder friendly moves and impressive earnings history. The company’s shares have gained 27.3% in the past year, comfortably outperforming the Zacks categorized Movie/TV Production/Distribution industry’s gain of 19%. However, rising cost at cable segment and current headwinds remain as primary hindrances for the stock at the moment. Let’s delve deeper and find out what if it can carry on the bull run.

Hidden Catalyst

The performance of Cable Network Programming, which has been magnificent in fiscal 2015 and 2016 owing to rising affiliate fees, continues to impress investors in fiscal 2017 too. In second-quarter fiscal 2017, Cable Network Programming revenues jumped 7.1% on the back of robust affiliate and advertising revenues growth, after increasing 10% in first-quarter fiscal 2017.

Affiliate fees are the dominant source of revenue for the Cable Network segment as well as a major contributor to total revenue. In fiscal 2016, domestic and international affiliate revenues increased 8% and 3%, respectively. In fiscal 2015, revenues from Cable Network grew 12% on the back of 17% and 3% growth in affiliate fees at Domestic and International segments, respectively. Earlier, the company had stated that the pace of affiliate fees will accelerate in the back half of the fiscal year as 15–20% of its domestic subscribers will be up for annual renewal in couple of years.

Twenty-First Century Fox continues to focus on maximizing shareholders’ return. In the second quarter, Twenty-First Century Fox bought back 4.8 million shares for $132 million. At the end of the quarter, the company had $3.1 billion remaining under the current share buyback program. Moreover, rise in share price was also aided by three consecutive quarters of earnings beat. The company has an impressive long-term earnings growth rate of 9%.

Hurdles to Cross

Increase in cost at cable segment has been a concern for investors. In second-quarter fiscal 2017, cable segment expenses increased 8%, following a rise of 12% and 15% in the preceding two quarters. The rise in expenses was mostly due to elevated sports programming costs. The company expects costs at Cable Network to go up in fiscal 2017. We believe that an increase in expenses, primarily due to higher sports programming costs may hurt margins and in turn the bottom line in the coming quarters.

Even though Twenty-First Century Fox’s international presence helps to widen customer base, fluctuations in currency exchange rates can adversely impact the top-line and bottom-line results. In second-quarter fiscal 2017, the top-line growth was limited by $44 million. In fiscal 2016, the company’s EBITDA was impacted by foreign currency headwinds by nearly $380 million and reduced growth rate by 6%.

Zacks Rank & Stocks to Consider

Twenty-First Century Fox currently has a Zacks Rank #3 (Hold). Better-ranked stocks worth considering include Cable ONE, Inc. (NYSE:CABO) , Central European Media Enterprises Ltd. (NASDAQ:CETV) and Salem Media Group, Inc. (NASDAQ:SALM) . Cable ONE sports a Zacks Rank #1 (Strong Buy) while Central European Media Enterprises and Salem Media Group carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Cable ONE has an average positive earnings surprise of 4.7% in the trailing four quarters.

Shares of Central European Media Enterprises have gained about 41% in the past six months.

Salem Media Group has an average positive earnings surprise of 53.8% in the trailing four quarters.

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Central European Media Enterprises Ltd. (CETV): Free Stock Analysis Report

Salem Media Group, Inc. (SALM): Free Stock Analysis Report

Cable One, Inc. (CABO): Free Stock Analysis Report

Twenty-First Century Fox, Inc. (FOXA): Free Stock Analysis Report

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