Fox Analyst in Stock Downgrade on Fox News, Cord Cutting – The Hollywood Reporter

Wells Fargo analyst Steven Cahall on Monday downgraded his ratings on Fox Corp. shares from “equal weight” to “underweight,” citing Fox “News risks, cord-cutting risks, earnings risks.”

Cutting his stock price target by $4 from $35 to $31, he wrote: “Fox’s earnings are mostly Fox News earnings, and Fox News is facing viewership and share pressures. With ecosystem risks also elevated, we find our estimate outlook more negative and below the Street.”

Digging deeper into the news unit, the Wells Fargo expert highlighted: “Fox News is the Fox cash cow at about 80 percent of our fiscal-year 2024 estimated earnings before interest, taxes, depreciation and amortization (EBITDA). Viewership is down 19 percent January-June ’23 versus January-June ’21 due to cord-cutting and/or programming.”

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Cahall also cited other data and trends as a concern. “More worryingly, Fox News was 52 percent of cable news primetime viewership for 2020-22, 51 percent in January ’23 and that has slid to a low of 38 percent in June ’23 post-Tucker Carlson.” And he concluded: “Fox News’ share of conservative news viewers has fallen from 94 percent to 84 percent. While the new primetime lineup could drive a rebound, we think Fox News is a show me viewership story.”

After the ouster of host Tucker Carlson in April, Fox News is set to unveil its reworked primetime lineup July 17.

Media industry challenges are also hurdles for Fox, the analyst argued. “Fox gets about 50 percent of fiscal year 2023 and 2024 estimated revenue from U.S. affiliate fees — among the highest in our media coverage universe,” he pointed out. “We estimate 7-8 percent cord-cutting, with a downside bias.” Warned Cahall: “Fox Cable could soon go ex-growth on EBITDA like we’ve seen for peer linear nets. TV has better topline growth, but less ability to reduce costs due to sports rights.” Any worse-than-expected cord-cutting trends could provide further downside risk, he emphasized.

Cahall lauded Fox’s “strong balance” and noted that it looks cheap, but warned investors: “Cheap is not a thesis.” After all, “while Fox looks inexpensive, so does Warner Bros. Discovery with higher debt but owned-IP as a backstop, Nexstar with broadcast industry scale, Tegna with M&A potential and ad agencies with growth and capital deployment.” Summarized Cahall: “We thus see more attractive value stocks in media, though we are less bearish on Fox versus Paramount Global and AMC Networks.”

About his price target cut to $31, or 9 percent downside, the Wells Fargo analyst wrote that its reflects “the ecosystem and news risk, and this puts Fox at parity or a modest premium with our other TV broadcast and linear cable nets.” Concluded Cahall: “Fox News and the long-term earnings trajectory need to improve to make us less bearish.”

Fox shares were slightly lower in Monday trading.