Media Entertainment Stocks

Twenty-First Century Fox Inc Valuation – February 2016 Update $FOXA

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – November 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Twenty-First Century Fox Inc (FOXA) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Twenty-First Century Fox, Inc. is a media and entertainment company. The Company operates through segments: Cable Network Programming, Television, Filmed Entertainment, and Other, Corporate and Eliminations. The Company produces and licenses news, business news, sports, general entertainment, factual entertainment and movie programming for distribution primarily through cable television systems, direct broadcast satellite operators, telecommunications companies and online video distributors in the United States and internationally. The Company is engaged in the operation of broadcast television stations and the broadcasting of network programming in the United States. The Company is engaged in the production and acquisition of live-action and animated motion pictures for distribution and licensing in all formats in all entertainment media, and the production and licensing of television programming around the world.

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of FOXA

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $53,223,079,988 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.17 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 356.02% Pass
6. Moderate PEmg Ratio PEmg < 20 10.68 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.42 Pass
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.17 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.29 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

FOXA value chart February 2016

EPSmg $2.43
MG Growth Estimate 15.00%
MG Value $93.68
Opinion Undervalued
MG Value based on 3% Growth $35.28
MG Value based on 0% Growth $20.68
Market Implied Growth Rate 1.09%
Current Price $26.00
% of Intrinsic Value 27.75%

Twenty-First Century Fox Inc qualifies for both the Enterprising Investor and the more conservative Defensive Investor.  The Defensive Investor is only concerned by the insufficient earnings stability over the last ten years, and the Enterprising Investor is only concerned with the level of debt relative to the net current assets.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.58 in 2012 to an estimated $2.43 for 2016.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.09% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

Stage 3: Information for Further Research

FOXA charts February 2016

Net Current Asset Value (NCAV) -$8.71
Graham Number $16.84
PEmg 10.68
Current Ratio 2.17
PB Ratio 3.42
Dividend Yield 1.15%
Number of Consecutive Years of Dividend Growth 3

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Most Recent Balance Sheet Figures

Balance Sheet Information Sep2015
Total Current Assets $15,193,000,000
Total Current Liabilities $6,992,000,000
Long-Term Debt $18,767,000,000
Total Assets $47,997,000,000
Intangible Assets $18,777,000,000
Total Liabilities $32,716,000,000
Shares Outstanding (Diluted Average) 2,012,000,000

Earnings Per Share History

Next Fiscal Year Estimate $1.68
Jun2015 $3.90
Jun2014 $1.99
Jun2013 $3.03
Jun2012 $0.47
Jun2011 $1.04
Jun2010 $0.97
Jun2009 -$1.29
Jun2008 $1.81
Jun2007 $1.14
Jun2006 $0.76
Jun2005 $0.73
Jun2004 $0.58
Jun2003 $0.31
Jun2002 -$2.74
Jun2001 -$0.56
Jun2000 $0.76
Jun1999 $0.48
Jun1998 $0.57
Jun1997 $0.31
Jun1996 $0.25

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.43
Jun2015 $2.57
Jun2014 $1.77
Jun2013 $1.39
Jun2012 $0.58
Jun2011 $0.66
Jun2010 $0.54
Jun2009 $0.43
Jun2008 $1.20
Jun2007 $0.83
Jun2006 $0.42
Jun2005 $0.06
Jun2004 -$0.30
Jun2003 -$0.61
Jun2002 -$0.81
Jun2001 $0.21
Jun2000 $0.55

Recommended Reading:

Other ModernGraham posts about the company

10 Low PE Stocks for the Defensive Investor – January 2016
10 Most Undervalued Companies for the Defensive Investor – October 2015
Twenty-First Century Fox Inc. Valuation – October 2015 Update $FOXA
10 Low PE Stocks for the Enterprising Investor – August 2015
10 Most Undervalued Companies for the Enterprising Investor – August 2015

Other ModernGraham posts about related companies

Scripps Networks Interactive Inc Valuation – February 2016 Update $SNI
Walt Disney Co Valuation – December 2015 Update $DIS
Wal-Mart Stores Inc. Valuation – November 2015 Update $WMT
CBS Corporation Valuation – November 2015 Update $CBS
Time Warner Cable Inc. Valuation – November 2015 Update $TWC
News Corporation Valuation – November 2015 Update $NWSA
The Best Companies of the Media Entertainment Industry – October 2015
Twenty-First Century Fox Inc. Valuation – October 2015 Update $FOXA
Graham Holdings Company Analysis – September 2015 Update $GHC
Scripps Networks Interactive Inc. Analysis – September 2015 Update $SNI

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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