Recent Selloff In Twenty-First Century Fox Shares 'Overdone'; Brean Upgrades To Buy

Shares of Twenty-First Century Fox Inc FOXA slid on news of the company reaching a preliminary deal to acquire SKY PLC (ADR) SKY SKYAY. The selloff appears “overdone,” Brean Capital’s Alan Gould said in a report. He upgraded the rating on the company from Hold to Buy, while maintaining the price target at $33.

Twenty-First Century Fox shares have significantly underperformed the market over the past six months, with downward revisions in estimates, a meaningful slowdown in share buybacks and the absence of earnings guidance, Gould mentioned. He added that the company had not been able to “discuss the rationale behind the Sky proposal or anticipated synergies.”

Acquisition Makes Sense

The acquisition makes sense strategically, Gould stated, expressing optimism regarding the prospects of the potential merger.

“Owning Sky provides Fox with 100 percent ownership of the largest direct-to-consumer video business in Europe. We have always liked the combination of content and distribution [...] Sky could potentially help the Hulu JV (30 percent owned by FOX) which is about to launch a virtual MVPD in the US, and hypothetically the two entities could become part of a global buying consortium for content,” the analyst wrote.

Twenty-First Century Fox shares had remained broadly flat over the past five months, while the S&P had gained 9 percent. Following the recent sell-off, the stock appears “inexpensive,” Gould mentioned, recommending the stocks of Twenty-First Century Fox, CBS Corporation CBS (Buy Rated) and Time Warner Inc TWX (Buy Rated)for traditional media investors.

At last check in Wednesday's pre-market session, shares of Twenty-First Century Fox were up 0.74 percent at $27.24.