Twenty-First Century Fox (FOXA): FY17 Is Worth the Wait - UBS

UBS Analyst, Meghan Durkin, is patiently waiting for growth to reaccelerate at 21st Century Fox (NASDAQ: FOXA) and she believes that a CAGR of 11% for a company trading at 13x earnings with multiple catalysts is worth waiting for.

Fox reported F2Q16 EPS in line with the Street at $0.44 but once again lowered FY16 guidance, as many investors had anticipated. The new guide is FY16 EBITDA flat-to-+LSD Y/Y (~$250m below prior +MSD), with the culprit once again incremental FX (~$150m), but also 1H FY16 Film underperformance (~$100m), less worrisome than prior Fox Broadcast operational issues.

The thesis is that after a long stretch of investments in sports, Fx headwinds (~$900m) and content shortfalls at the Fox Network and Film, that growth is about to lift off.

U.S. ad results are improving, tracking ahead of guidance for Broadcast (tracking +3% for FY16 vs. flat guide with F2Q network up a strong 11% and 2H FY16 up MSD despite tougher comps) and in line for Cable Nets (tracking +5% for FY16 with F2Q +3% but F3Q accelerating to +8% as political helps Fox News and FX Net tough comps expire). U.S. Cable Net affiliate F2Q16 remained +10% and is still tracking +HSD going fwd, while sub trends have been improving slightly (likely due to lessening skinny bundle impacts). Int'l core ad grew a very strong 26%, core int'l affiliate grew 11%.

FY16 visibility appears high at this point with TV rtgs trends established, F3Q/4Q ad sales far along and affiliate revs locked in, though Fx remains a minor swing factor. CY16 Film appears much better positioned (Deadpool tracking well; several summer sequels: X-Men: Apocalypse, Independence Day 2, Ice Age 5). Other key FY17 components also appear clear (political, Superbowl, Star growth, U.S. affiliate growth, cost controls), with core ad and Fx still swing factors.

DCF PT is down $2 to $39 due to lower ests but consistent assumptions (9% WACC, 1.5% growth).

For an analyst ratings summary and ratings history on 21st Century Fox click here. For more ratings news on 21st Century Fox click here.

Shares of 21st Century Fox closed at $24.59 yesterday.

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