We initiated our coverage on
Twenty-First Century Fox, Inc.
) with a Neutral recommendation and a target price of $34.00.
Twenty-First Century Fox is a major diversified entertainment
company. It commands a globally recognized and diversified brand
portfolio which bolsters its position in the market.
Twenty-First Century Fox is trying to expand in the lucrative
sports market where it competes with
The Walt Disney Co'
) sports coverage network, ESPN. The company recently launched
Fox Sports 1 in Aug 2013 to emerge as a strong competitor in the
world sports market.
The company is also trying to expand through acquisitions
which include Sports Time Ohio, Yankees Entertainment, Eredivisie
Media & Marketing and Fox Sports Asia. The company already
boasts a well-recognized regional sports network, FSN (Fox Sports
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Further, affiliate fees at Twenty-First Century Fox shows an
upward trend in the last couple of years. Affiliate fees are the
major source of revenues for the Cable Network Programming
segment and make a significant contribution to the total revenue.
The upside potential seen in affiliate fees and retransmission
revenues is likely to work in the company's favor. Moreover,
management expects total earnings before interest, taxes,
depreciation and amortization (EBITDA) to increase in the high
single-digit to low double-digit range, above the $6.26 billion
level for fiscal 2013, mainly driven by the Cable segment that
constituted nearly 2/3 of EBITDA in the last year.
Moreover, Twenty-First Century Fox has been actively managing its
cash flows and returning much of its free cash to shareholders
through share repurchases and dividends. A widespread
international presence adds to the positives.
On the flip side, Twenty-First Century Fox's first-quarter fiscal
2014 bottom-line results were disappointing as it missed the
Zacks Consensus Estimate and fell 13.2% year over year. Moreover,
cautious commentary regarding Filmed Entertainment segment's
fiscal 2014 performance, dependence on third party-owned
television stations and near-term headwinds (such as rise in
programming costs) restrain us from becoming more constructive on
Moreover, advertising, which is highly susceptible to
macroeconomic challenges, remains a primary revenue source for
Twenty-First Century Fox. Additionally, cut-throat competition in
the media industry from behemoths like
) is a concern as well.
Other Stocks to Consider
Currently, Twenty-First Century Fox carries a Zacks Rank #3
(Hold). However, a better-ranked retail stock worth a look is
DreamWorks Animation SKG Inc.
) with a Zacks Rank #2 (Buy).