Wolfe Research moved Fox Corp. up to an Outperform rating from Peer Perform and established a $71 price objective, arguing the planned transaction with Roku creates a more dynamic growth profile than the market currently values. The upgrade was published in a note on Wednesday and centers on expected revenue and advertising synergies from combining the two businesses.
Analyst Peter Supino told clients the tie-up "strengthens both competitively and should double Fox's long-term sales growth rate." He quantified the combined company's footprint in connected TV and streaming, saying the merged unit would represent roughly 45% of pro forma TV engagement and about one-third of pro forma revenue.
Supino highlighted how Roku's consumer-data capabilities are likely to refine ad targeting on Tubi, Fox's streaming ad-supported service, while Fox's premium advertising inventory and sales force should improve Roku's ability to monetize its platform. Those effects, Wolfe argues, align with advertisers' desires for more precise targeting alongside larger audiences.
Market reaction to the deal has been negative to date, with Fox shares down 23% from their pre-merger level. The stock is trading at 11.8 times next-twelve-month pro forma unlevered free cash flow, a multiple Wolfe describes as discounted given the deal's potential. Wolfe noted Fox is actively repurchasing shares at these lower prices.
The $71 target from Wolfe is derived from applying a 13-times multiple to Wolfe's estimated pro forma 2028 unlevered free cash flow of $3.6 billion. Supino acknowledged that shares dropped about 17% on June 15 after the $22 billion agreement with Roku was announced, a reaction he attributed to shareholder expectations for other uses of cash - including repurchases, dividends and smaller acquisitions - rather than a transaction that more than doubles enterprise value at a valuation exceeding three times Fox's standalone multiple.
Despite the short-term selling, Wolfe expects FOXA to rebound as the wave of selling subsides and new investors reassess the combined company's prospects. The research house says current market prices imply low-single-digit revenue growth through 2030, a pace it considers well below its own forecasts for Fox and Roku on a combined basis. Wolfe's combined forecast calls for a 5.7% revenue compound annual growth rate.
Clear summary
Wolfe Research upgraded Fox to Outperform with a $71 target, arguing the Roku deal materially increases connected-TV scale and advertising synergy potential, justifying a higher valuation based on projected pro forma 2028 unlevered free cash flow.
Key points
- Wolfe projects the merged Fox-Roku connected-TV and streaming unit will account for about 45% of pro forma TV engagement and roughly one-third of pro forma revenue - a scale benefit to advertisers and monetization.
- The firm expects Roku consumer data to improve targeting for Tubi while Fox's premium inventory and sales capabilities lift Roku monetization, matching advertiser demand for better targeting and larger audiences.
- Wolfe's $71 target is based on 13 times estimated pro forma 2028 unlevered free cash flow of $3.6 billion; current trading sits at 11.8 times next-twelve-month pro forma unlevered free cash flow.
Risks and uncertainties
- Share-price volatility: Fox shares fell 17% on the announcement date and are down 23% from pre-merger levels, reflecting investor concern and ongoing selling pressure that could continue to weigh on the stock.
- Valuation reaction: Some shareholders expected capital returns or smaller acquisitions rather than a transaction that increases enterprise value by more than three times Fox's prior multiple, creating near-term investor pushback.
- Execution of synergies: The anticipated benefits from improved ad targeting and monetization depend on integrating Roku's data capabilities with Tubi and Fox's sales operations, outcomes that are contingent on successful execution.