Everybody Loves Rupert: Analysts Applaud Fox

NEW YORK ( TheStreet) - Everybody loves Rupert.

Fresh off an investor day in Los Angeles with executives of 21st Century Fox ( FOXA), Wall Street analysts were effusive, gushing over the potential for Murdoch's newly-focused television and film company to attain an even higher stock price despite having already gained 29% this year and trading at a 20 times estimated 12-month earnings, its highest valuation in at least 18 months, according to data compiled by Bloomberg.

Wells Fargo analyst Marci Ryvicker raised her longterm earnings outlook while reiterating an outperform rating. Ryvicker declared that even as the company is investing in the short term - Fox Sports 1, FX - Murdoch still has plenty of cash and credit available to finance acquisitions. Fox's profit margins, accounting for some adjustments, Ryvicker said, are higher than any rival entertainment company.

Shares of New York-based Fox were adding 0.1% to $32.82 in mid-day trading.

Looking ahead, Ryvicker issued her first forecast for 2015, projecting that Fox can be expected to post earnings of $1.80 per share, a 19% increase above her 2014 estimates, on revenue of $31.9 billion, a 6% increase. Earnings before interest, taxes, depreciation and amortization in 2015 should generate $7.7 billion. The message is clear: Fox is doing just fine.

Her reasons for optimism include The Simpsons, which goes into syndication in 2015 and Modern Family , which has been sold across distribution outlets starting in the fall of 2014. Fox Sports 1, the company's ambitious attempt to challenge Disney's ( DIS) ESPN, is scheduled to go live on Aug. 17.

Additionally, Fox will be increasing its ownership stake in the YES Network, home of the New York Yankees and Brooklyn Nets, to 80% from 50% by the company's fiscal year 2016.

"We think when investors compare BOTH the near-term and the long-term growth rates of FOXA to the rest of the group, as well as incorporate monetization of some of the company's hidden value, the stock will continue to move higher," Ryvicker said.

Barclays' Doug Mitchelson made Fox his top pick among media stocks, emphasizing that the company has the fastest growth rate in the entertainment group, and that management is no longer encumbered by the headache known as print, having spun-off its publishing assets in June into the reconfigured News Corp ( NWSA).

Fox shareholders should also benefit from the company's $4 billion stock buyback program and its increased dividend to 25 cents from 17 cents.

The Los Angeles meeting, Mitchelson noted, included all of Fox's operating chiefs who detailed "growth plans and competitive positions. Overall, we found the level and breadth of disclosure engendered a greater level of confidence in our forecast," he said, in an investor note published Friday. Mitchelson rates the shares a buy with a $36 12-month price target.

James Dix at Wedbush added to the Fox admiration society, explaining that he also likes the potential for growth at Fox's Italian cable-TV unit Sky Italia and STAR, its Indian network. But ultimately, Fox's strength lies in its production of programming for cable-TV and broadcast networks. Fox has 43 series in production for 16 networks while TV production is generating $500m per year from digital platforms including video-on-demand and mobile.

Indeed, programming for cable-TV distributors worldwide is clearly the best business in media.

For its recently completed quarterly earnings, Fox's net income surged 65% to $1.04 billion on higher distribution fees for its cable-TV networks. Without ESPN, Disney would have had a much harder time masking losses from The Lone Ranger, whereas Viacom ( VIA) was able to trumpet a 20% increase in net income in the second quarter on a 14% rise in revenue to $3.7 billion, largely due to cable and satellite fees paid to Nickelodeon and MTV. Viacom also increased its own share buyback effort to $20 billion, which boosted its stock price further. Viacom shares have gained 49% this year.

But the spotlight, for the moment, is on Fox. Dix has an outperform rating on the shares with a 12-month price-target of $34.

Written by Leon Lazaroff in New York

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