Neil Macker: Following the sale of Twenty First Century Fox’s entertainment assets to Disney, we are initiating coverage of Fox Corporation with a narrow moat rating and a $42 per share fair value estimate.
Fox Corporation, the successor firm to Twenty First Century Fox, consists of the Fox network, 28 local TV stations, Fox News Group, and Fox Sports. The new firm represents a large bet on the viability of live sports and news. We believe these bets are well placed given our expectations for the evolution of the television industry, but Fox is now undiversified relative to other media firms.
Fox News has finished as the top cable news network for the last 17 years. We expect the network to retain its top spot on the cable news pyramid, allowing New Fox to increase affiliate fees while maintaining carriage at both traditional and over-the-top distributors.
Disney-owned ESPN still leads the cable sports wars, yet FS1 has established itself as a viable competitor. The network owns the rights to several sports, including MLB, college sports, and soccer. While we expect Fox to continue investing in acquiring rights, we believe that the channel faces an uphill struggle against a much larger competitor in ESPN.