With a daily loss of -6.25%, a 3-month loss of -0.26%, and an Earnings Per Share (EPS) of 2.32, Fox Corp (FOXA, Financial) presents a compelling case for value investors. But is the stock modestly undervalued? To answer this question, we delve into an in-depth valuation analysis of Fox Corp (FOXA). Let's explore.
Company Introduction
Not sold to Disney by predecessor firm, Twenty First Century Fox in 2019, Fox Corp (FOXA, Financial) represents a diversified portfolio of assets. These 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. Post 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.
With the current stock price at $30.98 and a market cap of $14.60 billion, Fox Corp (FOXA, Financial) is trading below its GF Value of $40.7. This suggests that the stock is modestly undervalued. The following analysis will provide a deeper understanding of the company's value.
Understanding GF Value
The GF Value is a proprietary estimation of a stock's fair value, computed considering three factors: historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line offers a snapshot of the stock's ideal fair trading value.
According to GuruFocus Value calculation, Fox (FOXA, Financial) is estimated to be modestly undervalued. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher. Therefore, as 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
An investment in a company with poor financial strength carries a higher risk of permanent loss of capital. Hence, it is crucial to review a company's financial strength before deciding to buy its stock. Fox's cash-to-debt ratio of 0.52 is worse than 62.51% of 1003 companies in the Media - Diversified industry. However, GuruFocus ranks the overall financial strength of Fox at 6 out of 10, indicating fair financial strength.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, poses less risk. Fox has been profitable 8 over the past 10 years. It has a revenue of $14.90 billion and an Earnings Per Share (EPS) of $2.32. Its operating margin is 18.53%, ranking better than 88.41% of 1018 companies in the Media - Diversified industry. Overall, GuruFocus ranks Fox's profitability at 8 out of 10, indicating strong profitability.
One of the most important factors in the valuation of a company is growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. Fox's average annual revenue growth is 12%, ranking better than 79.73% of 957 companies in the Media - Diversified industry. Its 3-year average EBITDA growth is 11.5%, ranking better than 61.2% of 768 companies in the Media - Diversified industry.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Fox's return on invested capital is 12.23, and its cost of capital is 5.96.
Conclusion
Overall, Fox Corp (FOXA, Financial) stock is estimated to be modestly undervalued. The company's financial condition is fair and its profitability is strong. Its growth ranks better than 61.2% 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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