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Will This Upgrade Help 21st Century Fox (FOXA) Today?

Stocks in this article: FOXA

Story updated at 10:25 a.m. to reflect market activity.

NEW YORK (TheStreet) -- 21st Century Fox (FOXA) was upgraded to "outperform" from "market perform" by BMO Wednesday.

21st Century Fox was gaining 0.4% to $33.91 in morning trading.

The analyst firm raised its price target for the entertainment company to $40 from $33. Analysts Daniel Salmon, Ygal Arounian, and Nirav Modi said the stock has pulled back to an attractive entry point. Shares of 21st Century Fox closed at $33.06 Tuesday.

"The long-term growth story at 21st Century Fox is well-understood - driven by consistent top-line growth of US and international cable networks, acceleration of re-transmission fees for the Fox broadcast network and a doubling of DBS OIBDA by FY2016 -- but recent softness in broadcast ratings, continued investment in cable networks and weak box office results have created a good entry point," the analysts wrote. "We see potential upside to our estimates ($9.1B in FY2016 OIBDA vs. Fox's target of $9B) that could come from a faster-than-expected revenue ramp for Fox Sports 1, FXX, and Star in India, a bounce-back in Fox broadcast ratings (as X Factor leaves the lineup and American Idol winds down), or better-than-expected GDP recovery in Italy, helping Sky Italia become more than just a cost-cutting story."

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Separately, TheStreet Ratings team rates TWENTY-FIRST CENTURY FOX INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate TWENTY-FIRST CENTURY FOX INC (FOXA) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, reasonable valuation levels and good cash flow from operations. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 4.4%. Since the same quarter one year prior, revenues rose by 14.9%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The debt-to-equity ratio is somewhat low, currently at 0.99, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.35, which illustrates the ability to avoid short-term cash problems.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Media industry and the overall market, TWENTY-FIRST CENTURY FOX INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • Net operating cash flow has significantly increased by 178.54% to $727.00 million when compared to the same quarter last year. In addition, TWENTY-FIRST CENTURY FOX INC has also vastly surpassed the industry average cash flow growth rate of -11.25%.
  • You can view the full analysis from the report here: FOXA Ratings Report

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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