Despite a daily loss of 3.7% and a 3-month gain of 4.07%, Fox Corp (FOX, Financial) reports an Earnings Per Share (EPS) of 2.32. This raises the question: is this stock modestly undervalued? Let's delve into the valuation analysis to find out.
A Brief Overview of Fox Corp (FOX, Financial)
Fox Corp represents the assets not sold to Disney by the 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, Tubi, and the Fox Studios lot. 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.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, computed based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line gives an overview of the fair value that the stock should be traded at. 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.
At its current price of $29.39 per share, Fox has a market cap of $15 billion and the stock is estimated to be modestly undervalued. Because Fox is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
These companies may deliver higher future returns at reduced risk.
Financial Strength
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Fox has a cash-to-debt ratio of 0.52, which ranks worse than 62.91% of 1003 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 carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Fox has been profitable 8 years over the past 10 years. Its operating margin of 18.53% is better than 88.43% of 1020 companies in the Media - Diversified industry. Overall, GuruFocus ranks Fox's profitability as strong.
Growth is probably the most important factor in the valuation of a company. The 3-year average annual revenue growth of Fox is 12%, which ranks better than 79.54% of 958 companies in the Media - Diversified industry. The 3-year average EBITDA growth rate is 11.5%, which ranks better than 60.94% of 768 companies in the Media - Diversified industry.
ROIC vs WACC
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, Fox's ROIC was 12.23 while its WACC came in at 5.99.
Conclusion
In conclusion, the stock of Fox Corp (FOX, Financial) is estimated to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 60.94% of 768 companies in the Media - Diversified industry. To learn more about Fox stock, you can check out its 30-Year Financials here.
To find out the high-quality companies that may deliver above-average returns, please check out the GuruFocus High Quality Low Capex Screener.
