Despite a daily loss of 4.16% and a modest 3-month gain of 4.6%, Fox Corp (FOXA, Financial) boasts an impressive Earnings Per Share (EPS) (EPS) of 2.32. But is the stock modestly undervalued? Let's delve into a thorough valuation analysis to find out.
Company Introduction
Fox Corp (FOXA, Financial) is a media conglomerate, holding assets not sold to Disney by its predecessor, Twenty First Century Fox, in 2019. Its portfolio includes Fox News, the FOX broadcast network, FS1 and FS2, Fox Business, Big Ten Network, and 28 owned and operated local television stations. Since the Disney sale, Fox has acquired other assets, including Credible Labs, a consumer fintech firm. The Murdoch family continues to control the successor firm, banking on the value of live sports and news in the U.S. market. With a current stock price of $31.69, Fox's market cap stands at $14.90 billion. But how does this compare with its GF Value, an estimation of fair value?
Summarizing the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It's calculated based on three factors: historical multiples that the stock has traded at, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of business performance. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded.
According to the GF Value, Fox (FOXA, Financial) appears to be modestly undervalued. If the stock's share price is significantly above the GF Value Line, it may be overvalued and have poor future returns. Conversely, if it's significantly below the GF Value Line, the stock may be undervalued and have high future returns. Given Fox's current price of $31.69 per share and a market cap of $14.90 billion, the stock appears to be modestly undervalued. As a result, the long-term return of its stock is likely to be higher than its business growth.
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Assessing Fox's Financial Strength
Before investing in a company, it's crucial to check its financial strength. Investing in companies with poor financial strength can lead to a higher risk of permanent loss. Key indicators such as the cash-to-debt ratio and interest coverage can provide insights into a company's financial strength. Fox has a cash-to-debt ratio of 0.52, which is worse than 62.91% of 1003 companies in the Media - Diversified industry. The overall financial strength of Fox is 6 out of 10, indicating fair financial health.
Profitability and Growth
Investing in profitable companies typically carries less risk, especially if the company has demonstrated consistent profitability over the long term. A company with high profit margins usually offers better performance potential than a company with low profit margins. Fox has been profitable 8 years over the past 10 years. During the past 12 months, the company had revenues of $14.90 billion and an EPS of $2.32. 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 a crucial factor in a company's valuation. 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 12%, ranking better than 79.54% of 958 companies in the Media - Diversified industry. The 3-year average EBITDA growth rate is 11.5%, ranking better than 60.94% of 768 companies in the Media - Diversified industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) is another way to evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over 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 (FOXA, Financial) appears 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.
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