Watch out for FOX in 2014

FOX saw revenue hitting US$7.06 billion in the first quarter of FY14, up 17.6% year-on-year as its 'sports drive' hit full swing with the launch of Fox Sports 1 and Fox International Channel (FIC) sports channels.

The launch of FXX is also seeing mass penetration into its target market of young men as programs such as 'Arrested Development', 'Freaks & Geeks' and Sports Night see FOX gaining market share and highly prized adverting dollars

Medium term earnings growth

Earnings over the next three years FOX should see mid to low double digit growth as FIC, FXX and FS1 launch cost subside and these channels organically gain market share. Existing channels are also seeing market penetration as sports, cable and cinema revenue sees increased monetisation

Balance sheet capacity

Leverage is currently under management expectations at 2.5 times and has between US$2.7 to US$3.7 billion in excess cash, compared to management’s expectations of hold US$2.3 billion. With that in mind, shareholders are positioned to see further share buy backs; having seen management US$913 million in the first half of FY14 and is in line with guidance of $4 billion by year end.

The trade

I would look to buy FOX on the ASX as it has the added benefit of USD tail winds, and with the likely buy back happening in the next few months it could be an interesting trade on a medium term. Look for a pick up on a drop back to $37.50 before rallying on its results in a few weeks time.

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