Fox Leads Nasdaq 100 as Threat of Trump-Backed Rival Fades

Media giant Fox Corp. has emerged as the unlikely leader of the tech-heavy Nasdaq 100 Stock Index this year thanks to something that didn’t happen -- the launch of a competing news service backed by former President Donald Trump has failed to materialize.

Fox shares have climbed 47% so far in 2021 as the establishment of a Trump media outlet appears increasingly unlikely. The stock has significantly outpaced the Nasdaq 100, which has now erased its year-to-date gains twice as inflation fears hammer growth stocks. That reverses the trend from late last year, when Fox fell amid speculation that the former president might back or launch a network to rival Fox News, capturing some of its viewers and advertising revenue.

“At least for the time being, I think Fox News’s position seems really, really secure,” Bloomberg Intelligence analyst Geetha Ranganathan said in an interview.

While Trump’s relationship with Fox News has see-sawed throughout the years, the channel’s importance to its parent company has not. Fox News is the company’s biggest cash cow, according Ranganathan. She estimates about 75% of Fox Corp.’s profits come from the channel, which is why any overhang for Fox News translates to a big overhang for the stock.

Fox Leads Nasdaq 100 as Threat of Trump-Backed Rival Fades

Still, support for the shares is not universal.

Fox has 12 buys, 12 holds and three sell ratings, with price targets ranging from $25 to $54, according to data compiled by Bloomberg. Short interest -- a measure that indicates the amount of bets against a stock -- has come down from a one-year peak of 13% at the end of November and now sits at about 5.4% of float, data from financial analytics firm S3 Partners show.

Shares in other traditional media companies are also rallying and gains in ViacomCBS Inc. and Discovery Inc. have outpaced those of Fox, by more than doubling since the start of the year.

BofA Securities analyst Jessica Reif Ehrlich said that in the case of Fox, investors are increasingly appreciating the company’s wagering prospects as more states across the U.S. legalize sports betting. The betting industry is gaining traction as a key growth area for media companies.

Fox has online betting exposure through a 2.5% equity stake in Dublin-based sports-book operator Flutter Entertainment Plc, a 18.5% equity option in FanDuel Group, and an option to own 50% of Stars Group Inc.’s U.S. operations, Reif Ehrlich said in a recent note. Flutter has nearly full control of FanDuel, and it owns Stars Group.

Fox can also benefit from the shift to streaming through Tubi, a free-to-watch online-TV service it bought last year, said Bloomberg Intelligence’s Ranganathan. Fox hasn’t poured money into the streaming wars like its peers, but Ranganathan estimates Tubi could be valued at more than $4 billion by 2024.

Hidden Value

Fox Chief Financial Officer Steve Tomsic touched on the issue at a recent conference, saying the share price doesn’t reflect all of the hidden value in the company’s portfolio.

Fox’s blend of “must-have content,” streaming assets, sports-betting interests and a strong balance sheet should allow it to catch up to peers like ViacomCBS and Discovery, BofA’s Reif Ehrlich said.

“With expectations currently tempered, we anticipate several positive catalysts could narrow the divergence in multiples, driving shares higher,” she wrote. “We believe FOX is poised to outperform in the current environment.”

©2021 Bloomberg L.P.

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