How Baseball, 'Deadpool' Drove 21st Century Fox's Q2 Beat; Super Bowl To Add $400 Million Revenue In Q3

BMO Capital maintains its Outperform rating on Twenty-First Century Fox Inc FOXA following its $0.04 EPS beat in its second quarter, driven by the World Series, Fox News ratings and "Deadpool."

However, shares were down after the company's total revenue fell short of the Street's view. The results come as Fox recently offered to take full control of the British-based SKY PLC (ADR) SKYAY with a $14.6 billion bid.

Positives, Catalysts

Meanwhile, profits of Fox’s cable networks, television and filmed entertainment segments topped the Street and should benefit in the coming quarters, too, amid several catalysts on the horizon.

Analyst Daniel Salmon said the cable segment should benefit from affiliate fees and a reported renewal with Comcast Corporation CMCSA for certain networks including Fox News and content refresh across Fox and National Geographic.

On the TV front, the company saw an uptick in ads during the second quarter from the World Series and Salmon expects the Super Bowl to add about $400 million in its third quarter.

“While there are no runaway hits at the network, ratings are improving (A18-49 C3 ratings +9 percent broadcast season to date,+4 percent on a TTM basis),” Salmon continued.

Meanwhile, the analyst said the film segment’s earnings benefited from strong international box office performance of "Miss Peregrine" coupled with strong performance of "Deadpool" in home entertainment and Pay TV licensing this quarter.

Justification

Salmon also put out the following five reasons why he sees further upside in shares of Fox:

1. “Positive procedural steps towards closing Sky and the EPS accretion opportunity in F18/F19 (we estimate +16 percent in F19).”
2. “Core cable fundamentals accelerating through the year.”
3. “A potential new era at Fox News (new management, Trump impact on everyday viewership).”
4. “New programming continuing to roll out on FX and Nat Geo.”
5. “Continued multiple recovery as visibility on strategic goals (consolidate Sky...) and FCF uses (...then de-lever) is much improved.”

At last check, shares of Fox were down 2.22 percent to $30.37. Salmon raised his price target by $1 to $36.