Fox Corp (FOXA, Financial) stock has seen a daily gain of 5.56% and a 3-month gain of 8.28%. With an Earnings Per Share (EPS) of 2.13, the question arises: is the stock modestly undervalued? This article aims to answer this question by conducting a comprehensive valuation analysis. Read on for an in-depth exploration of Fox's intrinsic value.
Company Overview
Fox represents the assets not sold to Disney by predecessor firm, Twenty First Century Fox in 2019. The remaining assets include Fox News, the FOX broadcast network, FS1 and FS2, Fox Business, Big Ten Network, 28 owned and operated local television stations of which 17 are affiliated with the Fox Network, Tubi, and the Fox Studios lot. Since the Disney sale, Fox has acquired other related and unrelated assets including Credible Labs, a consumer fintech firm. The Murdoch family continues to control the successor firm, which represents a large-scale bet on the value of live sports and news in the U.S. market.
Comparing the stock price to the GF Value, an estimation of fair value, provides a snapshot of the company's potential value. This approach paves the way for a more profound exploration of the company's value, ingeniously integrating financial assessment with essential company details.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock derived from GuruFocus' exclusive method. The GF Value Line gives an overview of the fair value that the stock should ideally be traded at. It is calculated based on three factors:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) that the stock has traded at.
- GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of the business performance.
We believe the GF Value Line is the fair value that the stock should be traded at. The stock price will most likely fluctuate around the GF Value Line. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher.
The stock of Fox gives every indication of being modestly undervalued based on GuruFocus' valuation method. GF Value estimates the stock's fair value based on three key factors: historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. On the other hand, if the share price is significantly below the GF Value calculation, the stock may be undervalued and have higher future returns. At its current price of $34.92 per share, Fox stock gives every indication of being modestly undervalued.
Because Fox is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength
It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Fox has a cash-to-debt ratio of 0.51, which is worse than 64.4% of companies in the Media - Diversified industry. The overall financial strength of Fox is 6 out of 10, which indicates that the financial strength of Fox is fair.
Profitability and Growth
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. A company with high profit margins is also typically a safer investment than one with low profit margins. Fox has been profitable 7 over the past 10 years. Over the past twelve months, the company had a revenue of $14.90 billion and Earnings Per Share (EPS) of $2.13. Its operating margin is 18.79%, which ranks better than 89.39% of companies in the Media - Diversified industry. Overall, GuruFocus ranks the profitability of Fox at 8 out of 10, which indicates strong profitability.
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Fox is 10.2%, which ranks better than 77.22% of companies in the Media - Diversified industry. The 3-year average EBITDA growth rate is 0.2%, which ranks worse than 56.02% of companies in the Media - Diversified industry.
ROIC vs WACC
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Fox's return on invested capital is 12.33, and its cost of capital is 6.06.
Conclusion
Overall, Fox (FOXA, Financial) stock gives every indication of being modestly undervalued. The company's financial condition is fair and its profitability is strong. Its growth ranks worse than 56.02% of companies in the Media - Diversified industry. To learn more about Fox stock, you can check out its 30-Year Financials here.
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