Fox Corp (FOXA, Financial) recently witnessed a daily gain of 2.44% and has an Earnings Per Share (EPS) (EPS) of 2.32. However, over the past three months, the stock has suffered a 5.49% loss. This begs the question: Is Fox (FOXA) modestly undervalued? In this article, we will explore the valuation analysis of Fox, providing a comprehensive insight into its financial performance and intrinsic worth.
Introduction to Fox Corp (FOXA, Financial)
Fox 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 of which 17 are affiliated with the Fox Network, 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. The company's current stock price is $31.91, with a market cap of $15 billion. The GF Value, an estimation of the fair value of Fox (FOXA), stands at $40.73, suggesting that the stock might be modestly undervalued.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on 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 the business performance. The GF Value Line gives an overview of the fair value that the stock should ideally 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. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Based on the GuruFocus Value calculation, Fox (FOXA, Financial) stock is estimated to be modestly undervalued. At its current price of $31.91 per share, Fox has a market cap of $15 billion and the stock is estimated to be modestly undervalued. 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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Assessing Fox's Financial Strength
It is crucial to evaluate the financial strength of a company before investing in its stock. Companies with poor financial strength pose a higher risk of permanent loss. The cash-to-debt ratio and interest coverage are great tools to understand a company's financial strength. Fox has a cash-to-debt ratio of 0.52, which is worse than 62.45% of 1004 companies in the Media - Diversified industry, indicating that the financial strength of Fox is fair.
Profitability and Growth of Fox
Companies that have been consistently profitable over the long term offer less risk for investors. Fox has been profitable 8 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 $2.32. Its operating margin is 18.53%, which ranks better than 88.34% of 1038 companies in the Media - Diversified industry. This indicates strong profitability.
Growth is a crucial factor in the valuation of a company. The 3-year average annual revenue growth rate of Fox is 12%, which ranks better than 79.58% of 955 companies in the Media - Diversified industry. The 3-year average EBITDA growth rate is 11.5%, which ranks better than 61.74% of 771 companies in the Media - Diversified industry.
Evaluating 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). 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. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, Fox's ROIC is 12.23 while its WACC came in at 6.
Conclusion
In conclusion, the stock of Fox (FOXA, Financial) is estimated to be modestly undervalued. The company's financial condition is fair and its profitability is strong. Its growth ranks better than 61.74% of 771 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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