Shares of broadcaster Fox Corp. (NASDAQ:FOXA) surged Monday after MoffettNathanson analyst Michael Nathanson said financial markets are overlooking the company’s increasing exposure to the burgeoning US sports betting industry.
Nathanson reiterated a “buy” rating on the name while lifting his price target to $36 from $34. That sparked a rally that has Fox stock higher by almost four percent in midday trading, and on pace for its best intraday performance in at least two months. The analyst’s new price forecast implies upside of 33 percent from current levels.
Nathanson argues investors aren’t giving Fox enough credit for its sports betting-related investments, including a stake in Flutter Entertainment (OTC:PDYPY).
At Flutter’s current share price, Fox’s stake is worth $320 billion, and we value the The Stars Group (TSG) option at $2 billion, considering the significant valuation attributed to DraftKings (NASDAQ:DKNG) and the potential size of the US sports betting opportunity,” said the analyst in a note to clients.
Fox’s FOX Bet brand is the first sports wagering platform to bear the name of a major broadcaster, and it went live in New Jersey – the biggest US sports betting market – last year. Currently, FOX Bet controls 2.02 percent of the US online sports betting market, ranking ninth by that metric. It offers internet betting in Colorado, New Jersey, and Pennsylvania.
Familiar Argument
An analyst pointing out that a company’s US sports betting exposure isn’t fully appreciated by investors is a frequently made argument these days. It’s one applied to European companies with operations on this side of the Atlantic, and traditional gaming operators that are only beginning to penetrate the internet wagering market.
In the case of Fox, there are moving parts to the company’s sports betting profile beyond FOX Bet. The broadcaster’s stake in Flutter, which was recently upped, paves the way for it to eventually acquire half of TSG’s US business and up to 18.5 percent of FanDuel.
The TSG relationship comes by way of Fox shelling out $236 million last year to purchase five percent of the betting company. That’s prior to Flutter buying TSG for $12.2 billion in a deal creating the world’s largest online gaming entity.
Sell The Network
Another catalyst for the Monday rally in Fox stock is Nathanson suggesting Fox should sell its network business as an avenue for increasing shareholder value.
The analyst sees “no material business logic for New Fox to hold onto the Fox Network, given the modest value the market is ascribing to the television segment and the core value it can fetch elsewhere.”
“New Fox” is the result of last year’s $71.3 billion purchase by Walt Disney of the 21st Century Fox film and television assets, a deal that coincidentally included the transfer of a six percent stake in DraftKings to Disney.
Fox invested $160 million in DraftKings in 2015 as daily fantasy sports (DFS) were taking off in the US. But that position was written down just a few months later, with the broadcaster citing concerns about DraftKings’ lofty private market valuations.
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