Analyst says Fox’s Roku risk may be mispriced
Fox has been trading like a company that just added risk. One analyst says investors may be missing the reward. Rothschild Redburn upped its rating on Fox Corp. (FOXA) to Buy from Neutral and boosted its price objective to $71 from $48. The call suggests upside of about 31% from Fox’s last trading ...
Overview
Fox has been trading like a company that just added risk.
One analyst says investors may be missing the reward.
Rothschild Redburn upped its rating on Fox Corp. (FOXA) to Buy from Neutral and boosted its price objective to $71 from $48. The call suggests upside of about 31% from Fox’s last trading level of about $54.
The upgrade is not just about a cheaper stock.
It is more about whether markets are underestimating Fox after its proposed acquisition of Roku (ROKU). Debt, dilution, and the intricacy of the purchase have worried the market. The bullish case is that Fox is transitioning from a live news and sports organization to something more powerful: a full-stack linked TV advertising platform.
That's the secret investor question.
Is Fox purchasing risk or the distribution and analytics layer it needs to survive the next decade of television?
Fox CEO Lachlan Murdoch called the Roku deal “a defining moment” for the company.
The upgrade from Rothschild Redburn suggests at least one Wall Street firm thinks the market may be missing the upside.
Fox’s upgrade is really about what Roku could change
The analyst call opens with valuation.
Fox is trading at 9 times pro forma 2028 earnings per share and 7.7 times pro forma 2029 EPS. The company also expects a 23% compound annual EPS growth rate from 2026 to 2030, including synergies.
That is the argument on the surface.
The underlying point is that if the Roku deal closes and works, Fox may no longer deserve a valuation like a traditional media firm.
Fox said in June it would buy Roku for $160 a share in a cash-and-stock deal estimated at nearly $22 billion in enterprise value. The agreement combines Fox’s sports, news, and entertainment assets, including Tubi, with Roku’s connected-TV platform, The Roku Channel, first-party data, and direct partnerships with more than 100 million global streaming households, the business said.
Related: Fox to acquire streaming device maker for $22 billion
That's why the upgrade is important.
Fox already has content that people watch live, such as sports and news. Roku provides it with a far larger streaming presence in the living room.
That changes the investor debate from “Fox is an old media company” to “Fox may be building a scaled ad platform around live content, streaming distribution, and viewer data.”
This is an essential difference.
Content companies will have to keep paying for rights. Platforms can monetize audiences, advertising inventory, and data across a larger system. If Fox can do both, the stock might be worth a different multiple.
That looks to be the direction the analyst call is taking.
Roku also explains why investors remain skeptical
The bullish case is easy to understand.
So is the market’s reluctance.
Fox’s Roku agreement is big, complex, and not without danger. Under the deal, Roku owners would receive $96 in cash and 0.9693 Fox Class A shares for each Roku share, the firms said.
When the acquisition is complete, Fox shareholders would own roughly 73% of the merged company and Roku stockholders around 27%.
More Wall Street:
- Wall Street has a new problem, and it’s not the technology
- Wall Street’s biggest banks just landed the AI IPO of the year
- Wall Street’s top analysts just doubled down on 3 stocks
Fox also plans to finance the cash half using new loans and cash on hand. The company has secured $12 billion of committed bridge financing and expects pro forma net leverage of approximately 2.8x at closing. The deal is expected to close in the first half of calendar year 2027, subject to shareholder and regulatory clearances.
Details
That may help explain the initial punishment of the stock by investors.
The market may enjoy the strategic rationale but still worry about the balance sheet, dilution, integration risk, and if Roku can remain an open, partner-friendly platform under Fox ownership.
That’s where the Rothschild Redburn upgrade gets more fascinating.
The expert is essentially saying that markets have already priced in too much anxiety.
If the transaction happens, synergies materialize, and Fox leverages Roku to boost ad growth; today’s pricing may look cheap. The reduction could be warranted if the integration slips or debt becomes a bigger issue.
Tubi and live sports make Fox’s streaming case less speculative
Fox is not starting from zero in streaming.
That is important.
The company’s latest quarterly figures demonstrated both the strength and the limitations of its present approach. Fox’s revenue for the fiscal third quarter fell to $3.99 billion from $4.37 billion a year ago. Adjusted EBITDA grew 11% to $954 million. Adjusted earnings rose to $1.32 a share from $1.10 a year earlier.
The prior-year period included the Super Bowl, which caused advertising income to decline. Fox stated digital growth driven by Tubi helped to offset some of that pressure; Tubi revenue grew 23% and view time was up 19% in the quarter.
That makes the Roku deal a little more meaningful.
Fox has a rapidly developing ad-supported streaming asset in Tubi. There are live sports and news that still draw crowds at scale. Roku adds an operating system, home screen, The Roku Channel, platform data, and a bigger connected-TV advertising footprint.
Together, the pair could give Fox a better chance at competing for ad dollars that are flowing from traditional TV to streaming.
That is the bullish view.
The danger is that Fox will overpay for distribution, and sports rights costs will keep climbing.
The NFL assumption may be the real swing factor
Over the long haul, sports may still be the biggest variable.
Rothschild Redburn’s bullish model assumes Fox renews with the NFL after the 2027-28 season. That’s critical since live sports are at the heart of Fox’s value offering.
Sports rights are both a moat and a significant cost concern for Fox.
Reuters said Fox also secured rights to two more NFL regular season games, including a game played overseas, but the analyst said mounting sports rights costs could make it impossible for Fox to provide this many sports without hurting profitability.
That makes the NFL assumption key to the stock.
If Fox can hold onto premium sports rights, increase Tubi, integrate Roku, and deal with leverage, the firm may appear cheap. The bullish thesis becomes more difficult if sports costs spike rapidly or Roku synergies take longer than projected.
Key takeaways for Fox investors
- Rothschild Redburn upgraded Fox to Buy and raised its target to $71, according to Investing.com.
- The call is less about one quarter and more about whether Fox’s Roku deal is being undervalued.
- Fox is buying Roku for $160 a sharein a deal valued at about$22 billion in enterprise value.
- Roku gives Fox access to a major connected-TV platform, The Roku Channel and more than100 million global streaming households.
- The main risks are debt, dilution, integration and higher sports-rights costs.
- The upside case depends on Fox proving it can turn live content, Tubi and Roku into a stronger advertising platform.
Those points shape the investment discussion.
Fox isn’t just buying a streaming service.
It’s seeking to purchase more control over how people find television, how advertisers reach them, and how live content is monetized in a streaming future.
That’s a grander notion than a typical media merger.
It is also tougher to do.
Related: Netflix's Roku loss points to bigger streaming risk
Source
Originally published at www.thestreet.com.
