Wells Fargo has DOWNGRADED Fox Corporation’s stock as Fox News’ viewership continues to decline after Tucker Carlson’s departure

Wells Fargo has DOWNGRADED Fox Corporation’s stock as Fox News’s viewership continues to decline after Tucker Carlson’s departure.

Fox (NASDAQ:FOXA) shares fell nearly 2.5% in pre-market trading on Monday as investment firm Wells Fargo downgraded the media company, citing risks from cord cutting and its news business.

Analyst Steven Cahall lowered the firm’s rating on Fox (NASDAQ:FOX) to underweight from equal-weight, noting that the company’s earnings mostly come from Fox News, which he says is facing “viewership and share pressures.”

“With ecosystem risks also elevated we find our estimate outlook more negative and below the Street,” Cahall wrote in an investor note.

Cahall also cited other data and trends as a concern. “More worryingly, Fox News was 52 percent of cable news primetime viewership for 2020-22, 51 percent in January ’23 and that has slid to a low of 38 percent in June ’23 post-Tucker Carlson.” And he concluded: “Fox News’ share of conservative news viewers has fallen from 94 percent to 84 percent. While the new primetime lineup could drive a rebound, we think Fox News is a show me viewership story.”

Delving deeper, Cahall said he now believes Fox News has an enterprise value of roughly $11B. He values it 5 times EV/EBITDA, down from a previous estimate of 6 times due to worries of a “structural decline” in cable news viewership from cord cutting and demographics, as well as worries about talent departure and increased competition.

“We are also not convinced that cable news works well in streaming, so our 8% view on annual cord cutting presents ongoing earnings risks,” Cahall added.

Cahall values Fox Sports at 4 times EV/EBITDA and the company’s national FOX broadcast network and its owned and operated stations at 7 times EV/EBITDA.

Digging deeper into the news unit, the Wells Fargo expert highlighted: “Fox News is the Fox cash cow at about 80 percent of our fiscal-year 2024 estimated earnings before interest, taxes, depreciation and amortization (EBITDA). Viewership is down 19 percent January-June ’23 versus January-June ’21 due to cord-cutting and/or programming.”