Media
Why Credit Suisse Now Prefers 21st Century Fox Over Time Warner
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Investors look through various research reports to find new value in many different forms. One such method is to review additions and deletions from focus lists at the big investment banks. This is the Conviction Buy list at Goldman Sachs, the US 1 List at Merrill Lynch and the Focus List at Credit Suisse.
It turns out that Credit Suisse has decided to make a key change on its U.S. and Global Focus Lists for May. Twenty-First Century Fox Inc. (NASDAQ: FOXA) was added to the lists, while Time Warner Inc. (NYSE: TWX) was removed. Both stocks remain rated as Outperform and are still shown to have upside to the price targets.
On Time Warner, no changes were made to the forecasts. The driving force is simply more relative upside opportunity. Credit Suisse sees Twenty-First Century Fox having 42% upside to the firm’s new $40 target price, versus upside of about 24% for Time Warner.
As a reminder, most Dow and S&P stocks typically are shown to have 8% to 15% implied upside when they are given Buy, Outperform and Overweight ratings.
On Twenty-First Century Fox, Credit Suisse has grown more bullish on Hulu. This brought its sum of the parts analysis higher to a $40 per share valuation versus a prior $37 target.
The upside on Twenty-First Century valued Hulu at $25 billion. It previous valuation was set at $15 billion. Still, the report trimmed 2016 and 2017 earnings estimates 3% to $1.74 per share and 1% to $2.25, respectively. Longer term, the firm is raising 2018 earnings estimate to $2.71 per share from $2.67.
Credit Suisse also noted that Hulu is a 10 million to 20 million subscriber product. The firm is modeling in live streaming subscribers of 10 million by the year 2020.
After backing out the partnerships and interests, Credit Suisse values the so-called core Fox at just 5.5 times its expected 2017 enterprise value to EBITDA, which was called far too cheap as peers trade at 8.7 times that metric.
Shares of Twenty-First Century Fox were trading up 1.3%at $28.50 Monday morning, with a consensus analyst target of $34.00 and a 52-week range of $22.66 to $34.70.
Time Warner shares were last seen down 0.3% at $72.59. The consensus price target is $85.44. and the 52-week range is $55.53 to $91.34.
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