What happened

Media giant Fox Corporation (FOX 0.36%) (FOXA 0.22%) saw its shares head higher on Tuesday after analyst Kutgun Maral of RBC Capital initiated coverage of the stock with a buy rating. It appears that in the 30% broad market rally from March lows, investors are still looking for undervalued stock ideas.

Shares finished 4% higher on the day, and have now recovered 41% from lows hit last month.

A dollar bill folded into the shape of an arrow pointing up.

Image source: Getty Images.

So what

Fox Corporation generates revenue through advertising and affiliate fees across its cable programs and television networks. The problem is that Fox's audience is increasingly cutting the cord, opting for on-demand streaming video instead. It still has valuable content, like live sports, but some of that content is in question because of COVID-19. That may make it hard to attract advertisers, a near-term risk that Maral acknowledges.

However, Maral likes Fox's strong balance sheet and free-cash-flow generation. Given what he sees, he slapped the stock with an outperform rating and gave it a price target of $31 per share. At the time, Fox traded around $26, implying 19% upside. That would imply that Fox is a value stock at these prices.

Now what

Regarding the balance sheet, Fox is in a better position than some. At the end of the second quarter of fiscal 2020, it had around $2 billion in cash and cash equivalents on the balance sheet, and around $8 billion in noncurrent liabilities. Subsequent to Q2, the company made moves such as acquiring streaming platform Tubi and offering $600 million in senior notes, meaning these numbers are slightly different now. I'm not sure I'd necessarily call the balance sheet "strong," but Fox is certainly very liquid in this time of economic uncertainty.

Additionally, Fox is a profitable business. While Maral likes free cash flow, I prefer to look at net earnings by generally accepted accounting principles (GAAP). Through the first two quarters of fiscal 2020, Fox has earned $827 million. Some of that was from investment gains, but even subtracting those one-time items, it was profitable. Those earnings mean Fox trades below 10 times trailing earnings, which does indeed look cheap.

In the end, one analyst opinion doesn't make or break a long-term investing thesis. Investors need to assess Fox's plan to stay relevant as consumer demand shifts toward streaming (the Tubi acquisition is relevant). While shares may still have some upside this year, the company needs to guard against being left behind.