Fox’s 1Q Profit Soars 42% As Costs Drop; Needham Says Hold

Fox Corp. reported better-than-expected 1Q results. The mass media company’s adjusted EPS soared 42.2% to $1.18 year-over-year and surpassed analysts’ expectations of $0.81 per share, reflecting a double-digit decline in operating costs.

Fox’s (FOXA) operating expenses dropped 20.4% to $1.17 billion year-over-year. The company noted that the decline “primarily reflects lower programming rights amortization and production costs due to the postponement of live events at FOX Sports and certain scripted programming at FOX Entertainment as a result of COVID-19.”

Meanwhile, its 1Q revenues grew 2% to $2.72 billion and beat Street estimates of $2.59 billion. The year-over-year improvement was primarily driven by 3% sales growth at the Cable Network Programming segment, and partially offset by weakness in Television unit.

The television unit’s top-line performance was hurt by a 15% decline in advertising revenues. The company said that lower advertising revenues reflect “fewer NFL broadcasts, postponement of college football games at FOX Sports and certain scripted programming at FOX Entertainment as a result of COVID-19 and the absence of the prior year broadcast of the 71st Annual Primetime Emmy Awards.” (See FOXA stock analysis on TipRanks).

Following the earnings release, Needham analyst Laura Martin reiterated a Hold rating on the stock. In a note to investors, Martin wrote, “We are most intrigued by FOXA’s heavy mix of news content compared with its media peers, especially during COVID-19 and (more structurally) during the every-2-year political cycle.” However, the analyst is worried that “a recession resulting from COVID-19 “shelter at home” rules that might elongate a downdraft in FOXA’s ad revenue, EBITDA and EPS.”

Currently, the Street has a cautiously optimistic outlook on the stock. The Moderate Buy analyst consensus is based on 3 Buys, 3 Holds and 1 Sell. The average price target of $28.67 implies upside potential of about 6% to current levels. Shares are down 27.1% year-to-date.