Fox Leverages Tubi's Growth Amid Pay TV Challenges; Nexstar Bets On Skinny Bundles: Analyst Weighs In

Amidst the turbulence resulting from the Charter Communications Inc CHTR and Walt Disney Co DIS carriage dispute, Rosenblatt Securities is out with two investor notes on media stocks Fox Corp FOX FOXA and Nexstar Media Group Inc NXST, focusing on their positions amid shifts in the pay TV sector.

At the core, Fox is capturing growth through its FAST initiative, Tubi, while Nexstar’s shares are heavily impacted by the carriage dispute, though it’s poised to benefit from the rise of skinny bundles, which at its most basic are fewer TV channels and other offerings grouped together at a reduced price.

Here's what the analyst has to say.

The Fox Analyst: Barton Crockett maintained a Neutral rating on the stock, and raised the price target to $34 from $33.

Crockett noted Fox faced some challenges in the wake of the Charter/Disney dispute, with its shares slipping more than 6% in the beginning of the month, mirroring the trend seen among its industry counterparts.

The company’s heavy reliance on the pay TV bundle and the uncertain ramifications from the CHTR/DIS conflict places Fox in a potentially precarious position in the market, the analyst said, with the vulnerability being highlighted by the 8% dip in Fox’s pay TV subscribers in the recent quarter.

On the advertising front, Fox reported a year-on-year revenue decline of 11%. Through the company’s FAST initiative, Tubi, seems to be on an upward trajectory, seeing a 65% surge in TV time and a 47% spike in ad revenues, Crockett noted. Impressively, Tubi now accounts for over a tenth of Fox’s overall ad revenue.

Also, Fox’s broadcasting rights for Big 10 football, particularly with its expanded roster, augments its standing in the industry, acting as a buffer against potential market adversities.

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The Nexstar Analyst: Crockett maintained a Buy rating on the stock, and raised the price target to $230 from $228.

Crockett said Nexstar shares weren’t immune to the ripple effect of the Disney/Charter carriage standoff, plummeting by 13% even as the broader SPDR S&P 500 ETF Trust SPY remained stable.

The analyst said industry observers believe that the unfolding of the carriage disputes could catalyze the expansion of skinny bundles in the industry, which could be a silver lining for TV stations like Nexstar, which serve as the linchpins for the bundles and might emerge as beneficiaries in the evolving landscape.

Crockett said a litmus test for Nexstar’s market position is its ongoing carriage negotiations with DirecTV. Despite the challenges, Nexstar has been proactive, securing a series of agreements to maintain or introduce the broadcasting of its CW network across multiple locations.

Rosenblatt said with its stock currently valued at less than four times its free cash flow and bolstered by a management team with a commendable track record, Nexstar continued to be an enticing investment option in the eyes of many.

FOX And NXST Price Action: Shares of Fox Corp are trading 1.5% higher to $29.16, while shares of Nexstar gained just 0.08% to trade at $141.62, according to data from Benzinga Pro on Tuesday.

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