Analyst Drew Borst set a 12-month price target for Fox at $46 a share, noting that he expected Fox "to reprice higher its affiliate fee contracts with pay TV operators, driving ample free cash for programming, strategic investments and share buybacks."
"While pay TV faces secular challenges (i.e., cord cutting), FOXA has must-have sports and news programming that video platforms cannot do without," he wrote in a note to investors, "Fox News Channel is not only the #1 cable news network, it is the overall #1 cable network, and 64% of its affiliate contracts will renew between now and Election Day 2020."
Meanwhile, Borst continued, "FOX broadcast's program mix skews to popular sports (e.g., NFL, MLB playoffs, FIFA World Cup). FOX has the most live sports viewing hours of any TV network, including 14% more than ESPN, and yet FOX broadcast's affiliate fee is one-fifth of ESPN's fee."
Borst said he was also bullish on Fox's early-mover advantage in the nascent U.S. sports betting market.
In March, Walt Disney (DIS) - Get Report completed its $71.3 billion acquisition of Twenty-First Century Fox (FOXA) - Get Report assets. Disney agreed to acquire the majority of Fox's assets, including the media company's regional sports networks, its 30% stake in Hulu, and the company's film and television studios. Fox will continue to operate its news division and national sports network FS1.
"FOXA has emerged as a streamlined, focused domestic news and sports media company following the sale," Borst said.
In addition, Borst said that the Fox News Channel's ratings have grown or remained relatively stable regardless of whether the Republicans or Democrats were in the White House.
"We believe that FNC is unique in that it has a highly loyal fan base that is engaged with linear TV," he wrote. "As a result, we believe FNC has significant bargaining power in its approaching affiliate negotiations."