Lazard Capital Markets analyst Barton Crockett on Wednesday raised his stock price target on News Corp. by $4 to $35 following the conglomerate's announcement of its new sports cable network.
"While Fox Sports 1 will likely lose money for years as it builds up audience and programming in advance of hiking affiliate fees, at scale, we see potential for the new sports network to provide a 5 percent lift to consolidated earnings per share for the soon-to-be-separate Fox Group," he wrote in a report.
Wunderlich Securities analyst Matthew Harrigan also raised his price target on by $4 to $36, highlighting that "Fox will finally embark on its national sports network."
Crockett detailed his math. "We believe that SNL Kagan's projection that News Corp. is aspiring to a $1 per month affiliate fee is probably a reasonable approximation for News Corp.'s ambitions over time," he said. "Such a fee would be about a fifth of ESPN's, below leading regional sports networks, but above other national sports networks like NBC Sports."
If the network's costs were $800 million-$1.1 billion, or roughly a quarter of ESPN's, "it could build up a sports portfolio that's roughly a fifth as valuable as ESPN's and so collect this fee," the analyst explained. That could allow the network to generate operating profit before depreciation and amortization of $200 million-$500 million, he estimated.
"We are not modeling Fox to achieve more than 25 percent-30 percent of ESPN's $5-plus monthly fees, but also believe that it is positioned ahead of the other national network entrants even if the immersive ESPN environment and brand cannot be fully cloned," Harrigan wrote.
He estimated the value for News Corp.'s regional sports networks, including its stake in the Yes Network, the Fuel cable channel and Fox Sports 1 at $14.8 billion.
The network will launch via a rebranding of News Corp.'s Speed channel in August with a reach of 90 million homes.
Discussing the new network's effect on sports juggernaut ESPN, Crockett wrote: "We see a muted impact on Disney's ESPN as Disney has inked 10-year distribution deals with most distributors. Key ESPN games should retain their audience. The main competition will be in sports news."
The network will air studio programming nightly, including Rush Hour hosted by Regis Philbin and Fox Football Daily with the Fox Sunday football show hosts.
Barclays Capital analyst Anthony DiClemente on Wednesday also increased his price target for the entertainment giant by $2 to $33, but he mainly cited the company's sales agreement for its stake in a New Zealand pay TV firm earlier this week and other tweaks to his financial model.
"News Corp. is uniquely positioned given that it has an existing portfolio of national sports rights that could be aggregated onto a new network," he added though in reference to Fox Sports 1.
"While Fox has a compelling package, it still pales [in comparison] to ESPN, which owns rights to virtually every major sport and college conference," wrote Credit Suisse analyst Michael Senno. "Management admits it will take time to challenge ESPN, but similar to its entries in news and broadcast, News Corp. sees room for competition."
He concluded: "We continue to have a positive view on the strategy and investments in regional sports networks given our bias to sports exposure."