NEW YORK (TheStreet) -- Twenty-First Century Fox (FOXA) was dropping 2.79% to $32.53 after European Union regulators announced an investigation into deals between movie studios and pay television operators that preclude viewers in one European nation from watching a broadcast in another.
The European Union's antitrust officials said Monday that they have begun formal procedures to review licensing agreements between studios, including Twentieth Century Fox (which Twenty-First Century Fox (FOXA) owns), Warner Bros. (part of Time Warner, Inc. (TWX)), Sony (SNE) Pictures, NBCUniversal (owned by Comcast Corp.) and Paramount Pictures (owned by Viacom (VIA)). Three of Twenty-First Century Fox's pay television broadcasters - Sky Italia, Sky Deutscheland in Germany and BSkyB in the U.K. - are also under investigation, along with other pay TV broadcasters, including Canal Plus of France and DTS of Spain.
Studios often license valuable properties, including newly-released movies, to one pay TV broadcaster in one European country (sometimes more than one if the countries speak the same language) to give the big broadcasters "absolute territorial protection." This system means that said movies cannot be sent outside of the country where that broadcaster exists, even if would-be subscribers in other nations ask to receive a satellite signal.
The European Union regulations started a fact-finding investigation in 2012 and now want to dig further to determine if this system breaks rules that prevent any anti-competitive agreements.
TheStreet Ratings team rates TWENTY-FIRST CENTURY FOX INC as a Buy with a ratings score of B. The team has this to say about its recommendation:
"We rate TWENTY-FIRST CENTURY FOX INC (FOXA) a BUY. This is driven by a number of strengths, 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, notable return on equity, reasonable valuation levels, solid stock price performance and expanding profit margins. 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 2.4%. Since the same quarter one year prior, revenues rose by 17.6%. 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 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.
- FOXA's share price has surged by 26.94% over the past year, reflecting the market's general trend, despite their weak earnings growth during the last quarter. Turning to the future, naturally, any stock can fall in a major bear market. However, in almost any other environment, the stock should continue to move higher despite the fact that it has already enjoyed nice gains in the past year.
- TWENTY-FIRST CENTURY FOX INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, TWENTY-FIRST CENTURY FOX INC increased its bottom line by earning $2.91 versus $0.44 in the prior year. This year, the market expects an improvement in earnings ($3.04 versus $2.91).
- You can view the full analysis from the report here: FOXA Ratings Report