Analyst: Astute Investors Will Take Profits In 21st Century Fox Now

The long-struggling Twenty-First Century Fox Inc FOXA had hoped to stay afloat by jettisoning a good chunk of its assets to Walt Disney Co DIS. But it might have drawn unforeseen trouble in the process as some opportunistic traders threaten to jump ship.

The Rating

Loop Capital Markets analyst David Miller downgraded Twenty-First Century Fox from Hold to Sell and increased the price target from $29 to $31.

The Thesis

With the stock up 37.2 percent since the Disney rumors first began, Miller advised investors to cash in on Fox holdings and disputed consensus bullishness built on CBS Corporation CBS comparisons. (See the analyst's track record here.) 

“At $34.27/share, we believe the market is affording too high a multiple for the ‘New Fox’ stub equity piece, and that comparisons to CBS Corp. are inappropriate given the difference in asset mix between the two companies,” Miller said in a Thursday note.

The new Fox will lack CBS’ vertical integration, boast a wider portfolio of sports rights and have neither a premium network nor a direct-to-consumer offering. As such, Loop rejects the 9.5x multiple in out-year earnings before interest, tax, depreciation and amortization extended from CBS to Fox and instead applies an 8x multiple.

Between that, an 18-percent arbitrage spread and a $37.70-per-share transaction value estimate, Miller values Fox shares at $30.91, representing nearly 10 percent downside to current levels. 

Price Action

At the time of publication, FOXA shares were up 2.66 percent at $35.18. 

Related Links:

5 Thoughts From Bernstein On The Disney-Fox Deal

What's Next For Netflix, Hulu After The Disney-Fox Deal

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