Citi recommends buying the dip in Fox

Citi has identified Fox as its top pick in a note released on Friday, maintaining a price target of $78 per share and urging investors to purchase the stock after its recent decline, which Citi deems “overdone.”

Fox’s shares showed modest gains on the day of the report, with ROKU +0.44%, FOXA +0.74%, and FOX +0.82%.

Acquisition of Roku

On June 15, Fox announced that it had agreed to acquire Roku. The transaction is structured as 60% cash at $96 per share and 40% stock at 0.969 FOXA shares per Roku share, delivering a 33% premium to Roku’s pre‑announcement price. Citi estimates the deal will generate $400 million in cost‑saving synergies.

Citi’s synergy and financial outlook

Citi’s analysts expect the combined entity to produce roughly $1 billion of annual EBITDA from both revenue and cost synergies. Revenue synergies are projected to arise from:

  • Fox’s salesforce improving Roku’s fill rates, potentially adding $325 million of EBITDA annually.
  • Leveraging Roku’s platform to drive FOX One subscriptions, which could contribute an additional $160 million of EBITDA.

Citi also believes that cost synergies could exceed the $400 million target.

The bank argues that the deal may become free‑cash‑flow accretive one year after closing, ahead of Fox’s own guidance that expects FCF accretion in two years.

Market reaction and investor sentiment

Citi notes that most investors believed Fox’s share price should have fallen only about 10%, yet the stock declined more than that. The bank attributes the excess weakness to a clash between growth‑oriented and value‑oriented investors, lingering uncertainty about the realization of synergies, and a reluctance among fundamental investors to hold Fox ahead of the transaction’s completion.

Timeline and leverage expectations

Citi projects the acquisition to close as early as the fourth quarter of 2026, which is sooner than Fox’s outlook that anticipated closure in the first half of 2027. Net leverage is expected to peak at approximately 2.8× in fiscal 2027 and then decline to about 2.3× in fiscal 2028.