9 min read 

21st Century Fox (NYSE: FOXA) Stock will report earnings on 10 May 2017 after the closing bell. This event is expected to cause a spike in volatility, creating a trading opportunity. The question is whether the stock price will go up or down.

FOXA stock prices compared to the S&P 500 composite index
FOXA stock prices compared to the S&P 500 composite index

The company, though outperforming the industry, is facing a substantial number of local and global challenges. Moreover, the consensus EPS forecast for the quarter is $0.47, which is equal to the last year’s Q1 results. Here is the ultimate list of factors that can influence the stock price in the upcoming days. Read on and decide whether Fox is worth investing in!

Performance indicators

52 Week High-Low$32.60 – $23.33
Dividend / Div Yld$0.36 / 1.18%
EV/EBITDA Annual12.15
Consensus EPS forecast Q1/17$0.47
Reported EPS Q1/16$0.47
Forward PE16.00

Estimates

Growth factors

Good financial performance. The company has been showing stable and well-paced growth throughout the last one year. 21st Century Fox has reported higher than expected earnings for three quarters in a row and outperformed the industry. While the movie and TV production/distribution industry returned 18% growth to the investors, FOXA managed to reach as high as 26% increase. Experts are unsure if the company will preserve the momentum but it is quite possible.

FOXA's price returns and net income
FOXA’s price returns and net income

Cable Network Programming is an important component of the company’s growth. Not only it showed outstanding performance in 2015 and 2016 but also witnessed a revenue increase of 7.1% in 2017. In the first fiscal quarter of the current year affiliate and advertising revenues grew 10%.

Company's revenue sources in 2017
Company’s revenue sources in 2017

Focus on shareholders’ value. As any other international public company, 21st Century Fox is concerned with shareholder value and wants to raise it as high as possible. For this purpose, the company repurchased 4.8 million shares for $132 million and still has $3.1 billion remaining to complete the current program of stock buybacks. The semi-annual dividend was increased by 20% (from $0.15 to $0.18) in August 2016.

Fox's dividend and dividend yield in 2013-2017
Fox’s dividend and dividend yield in 2013-2017

Lucrative sports market. Sport is of great interest to the present-day cable network subscribers. At least, when being translated on the 50-inch TV in the living room. Knowing that 21st Century Fox works on expanding its regional sports channels portfolio. Fox Sports 1 is a TV channel, dedicated entirely to the sports activity. And it is expended to generate good returns. However, the company is operating in a competitive market, where channels like Disney-owned ESPN can hamper Fox’s ambitions.

Sports market is the essential part of the growing entertainment industr
Sports market is the essential part of the growing entertainment industry

Issues to address

Increasing expenses. In the world of the expanding Internet and highly available streaming services, one doesn’t want to increase subscription fees for cable-related products. If it would be possible to continue operations without increasing the cost, the company would probably do so. However, according to the statistics, in the last three quarters cable segment expenses consecutively grew 15%, 12%, and 8%. Expenses are attributed to the increased sports programming costs. Company’s gross margin and the bottom line can be seriously hurt.

Total expenses and gross profit margin of the Fox Corporation in the last five years
Total expenses and gross profit margin of the Fox Corporation in the last five years

Exchange rate fluctuations. Geographic diversification is a great way of offsetting the risks and extending the customer base, yet it bears with it several related risks. One of them is unpredicted exchange rate fluctuations that, translated into the national currency, can hinder achieving financial results. Receiving a substantial portion of its revenue from abroad, Fox doesn’t want USD to become too strong. In fiscal 2016 alone the company lost as much as 6% of its growth rate thank to currency fluctuations.

USD/JPY exchange rate fluctuations over a 10-year period
USD/JPY exchange rate fluctuations over a 10-year period

Tough competition. Fox is not the only company to operate in a highly competitive media industry. Our century is truly the age of information and a lot of service providers want to capitalize on it. With Disney, Viacom, Time Warner, and CBS Corp all competing for the same audience, 21st Century Fox may fight itself in a rather tough situation. Competition from international and domestic players is a serious challenge, even for the New York-based media giant.

Economic fluctuations. Relying on advertisement as its major revenue stream Fox is playing risky. Advertising is a cycle-based spending, that goes up when the national economy is doing great and apparently decreasing when the recession runs the show. If not this year, a global recession is quite possible in the years to come and will soon or later hit the media industry including 21st Century Fox.

Long-term growth or short-term drawdown?

The overall valuation for 21st Century Fox looks moderate to positive with a chance of stock prices going up in the Q2/17. Stock price movements at the moment of the earnings report release will depend on the information disclosed by the company. There are enough factors to contribute to its growth but possible headwinds are numerous.

Should the 21st Century Fox’s disclose better than expected figures, the stock price, all things being equal, can be expected to soar. Negative news about Q1/17 performance can trigger a drop in prices.

Go trading