Fox Stock Decline Overdone, Presents Buying Opportunity, Citi Says

Citi analysts have designated Fox Corp. (FOXA) as a "Top Pick," arguing that the media company's recent stock decline following its acquisition of Roku presents a compelling buying opportunity. In a note published Friday, the bank stated the share price drop was "overdone" and maintained its $78 price target on the stock.

Analyst's Thesis

Fox's shares fell significantly after it announced the Roku acquisition on June 15. According to Citi, while most investors expected a decline of around 10%, the actual drop was much steeper. The bank attributes the exaggerated weakness to several factors, including divergent interests between growth and value investors, uncertainty surrounding the deal's synergies, and a reluctance from fundamental investors to buy into the stock before the transaction closes.

Unpacking the Synergies

Citi's analysis suggests the market is underestimating the financial benefits of the merger. The bank projects approximately $1 billion in annual EBITDA from combined revenue and cost synergies, a figure that points to a more optimistic outlook than the company's own guidance.

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Key projections from Citi include:

• The deal may become free cash flow (FCF) accretive one year after closing, compared to Fox's guidance of two years.
• Revenue synergies could add $325 million in annual EBITDA by leveraging Fox's salesforce to improve Roku's ad fill rates.
• Using Roku's platform to drive FOX One subscriptions could contribute another $160 million in EBITDA.
• Cost synergies are expected to exceed Fox's initial target of $400 million.

Deal Context and Outlook

The deal's terms include 60% cash at $96 per share and 40% stock, representing a 33% premium for Roku shareholders. While Fox has guided for the transaction to close in the first half of 2027, Citi anticipates it could close as soon as the fourth quarter of 2026. The bank forecasts Fox's net leverage will peak at approximately 2.8x in fiscal 2027 before declining to 2.3x in fiscal 2028 as the benefits of the acquisition materialize.