Will 21st Century Fox Head Higher Post-Earnings?

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.

21st Century Fox on Thursday reported $7.06 billion of total revenue for the three months ending September 30, a $1.06 billion, or 18 percent, increase over the $6 billion of revenue in the prior year. Approximately half of the revenue increase reflects growth at the Cable Network Programming, Filmed Entertainment, and Television segments. Commenting on the results, Chairman and CEO Rupert Murdoch said: “In our first quarter as 21st Century Fox, we delivered strong revenue increases across all of our businesses as well as growth in OIBDA even as we made significant investment in our channels business, and faced a difficult film comparison and currency headwinds. The investment we are making, including the launch of FXX and Fox Sports 1, will drive future sustained growth toward our stated 2016 target of $9 billion of OIBDA and beyond.”

T = Technicals on the Stock Chart Are Mixed

21st Century Fox stock has been trading sideways in recent quarters. However, the stock is currently surging higher and looks set to continue this path. 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 signals 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

28.06%

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

March Options

Steep

Average

April Options

Steep

Average

As of Thursday, there is 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?

2013 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

-62.26%

-42.55%

-3.13%

221.1%

Revenue Growth (Y-O-Y)

17.62%

17.62%

-13.84%

13.52%

Earnings Reaction

1.86%*

-0.17%

-0.41%

N/A

*As of this writing.

21st Century Fox has seen decreasing earnings and increasing revenue figures over the last four quarters. From these numbers, the markets have been optimistic 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), and Viacom (NASDAQ:VIAB) — and sector?

21st Century Fox

Disney

Comcast

Viacom

Sector

Year-to-Date Return

-8.22%

-1.52%

3.84%

-7.22%

-2.28%

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 on Thursday reported fourth-quarter earnings that left investors optimistic. The stock has been trading sideways in recent times but is currently surging higher. Over the last four quarters, earnings have been decreasing while revenue figures have been increasing. 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.

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