Bank of America (BofA) has downgraded Fox, led by Lachlan Murdoch, to ‘underperform’ from ‘buy’, citing concerns over the upcoming renegotiation of the US National Football League’s (NFL) media rights packages. Analysts at BofA, led by Jessica Reif Ehrlich, also slashed the 12-month price target for Fox shares almost in half, from $US80 to $US45. Fox Corporation operates as a news and sports broadcaster, delivering content through its television stations and digital platforms. Its asset mix, heavily focused on sports and news, was previously seen as a strength.
The downgrade reflects BofA’s view that Fox is the most exposed stock in its coverage to the NFL renewal. According to BofA, traditional media partners appear structurally disadvantaged in negotiations, given the NFL’s importance to the linear bundle. Additionally, well-capitalised tech companies have signalled interest, increasing competition for limited inventory and driving up prices.
BofA anticipates that the likely outcome will be higher pricing or less favourable economics, potentially forcing incumbents to absorb margin pressure or risk losing core audiences and advertising value. Even in the best-case scenario, renewals are expected to dilute earnings power for several exposed media businesses, according to BofA. Fox’s Class B shares experienced a 4.2 per cent drop, trading at $US49.29 near 1pm in New York. The stock has shed 25 per cent of its value so far this year.
While acknowledging a range of potential outcomes for Fox in NFL discussions, BofA believes the NFL renewal will be an overhang on Fox’s stock price until resolved. The possibility of worst-case scenarios in outstanding renewal discussions will likely continue to pressure the stock, given the strategic and financial importance of the NFL to Fox, BofA noted.
