Where Will 21st Century Fox Go Next?

With shares of 21st Century Fox (NASDAQ:FOXA) trading around $32, is FOXA an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

21st Century Fox was formerly part of News Corp. The company has a portfolio of cable, broadcast, film, pay television, and satellite assets spanning six continents across the globe. It is home to a global portfolio of cable and broadcasting networks and properties: FOX, FX, FXX, FS1, Fox News Channel, Fox Business Network, Fox Sports, Fox Sports Network, National Geographic channels, Fox Pan American Sports, MundoFox, STAR, and 28 local television stations; film studio 20th Century Fox Film; and television production studios 20th Century Fox Television and Shine Group.

Rupert Murdoch’s 21st Century Fox is considering using proceeds from the sale of its Italian and German pay-TV assets to boost its offer for Time Warner (NYSE:TWX), according to two people familiar with the matter. Fox may reach an agreement to sell its wholly-owned Sky Italia unit and its 57 percent stake in Sky Deutschland AG to British Sky Broadcasting Group Plc in the next two weeks, the people said, asking not to be identified because the deliberations are private. The assets could be valued at about 10 billion euros ($13.5 billion), people familiar with the matter said in May. Fox owns a 39 percent stake in BSkyB. The proceeds could give Murdoch additional cash for a Time Warner bid without having to borrow more. While Fox is willing to pay more than $75 billion after Time Warner’s board rejected its $85 per-share bid, no final decision has been made on whether to bump the offer, the people said.

T = Technicals on the Stock Chart Are Weak

21st Century Fox stock has failed to make significant progress. The stock is currently pulling back and may need time to stabilize before heading higher. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, 21st Century Fox is trading below its rising key averages which signal neutral to bearish price action in the near-term.

FOXA

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of 21st Century Fox options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

21st Century Fox options

27.45%

86%

84%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

August Options

Steep

Average

September Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on 21st Century Fox’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for 21st Century Fox look like and more importantly, how did the markets like these numbers?

2014 Q1

2013 Q4

2013 Q3

2013 Q2

Earnings Growth (Y-O-Y)

-61.48%

-62.26%

-42.55%

-3.13%

Revenue Growth (Y-O-Y)

11.78%

17.62%

17.62%

-13.84%

Earnings Reaction

6.53%

0.27%

-0.17%

1.85%

21st Century Fox has seen decreasing earnings and increasing revenue figures over the last four quarters. From these numbers, the markets have had conflicting feelings about 21st Century Fox’s recent earnings announcements.

P = Weak Relative Performance Versus Peers and Sector

How has 21st Century Fox stock done relative to its peers, Disney (NYSE:DIS), Comcast (NASDAQ:CMCSA), Viacom (NASDAQ:VIAB), and sector?

21st Century Fox

Disney

Comcast

Viacom

Sector

Year-to-Date Return

-6.13%

12.32%

4.96%

1.16%

4.07%

21st Century Fox has been a poor relative performer, year-to-date.

Conclusion

21st Century Fox is a cable, broadcast, film, and pay television provider around the world. The company is considering using proceeds from the sale of its Italian and German pay-TV assets to boost its offer for Time Warner. The stock has failed to make significant progress and is currently pulling back. Over the last four quarters, earnings have been decreasing while revenue figures have been increasing, which has produced conflicting feelings among investors. Relative to its peers and sector, 21st Century Fox has been a poor year-to-date performer. WAIT AND SEE what 21st Century Fox does next.

Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

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