By Michael Elkins
Argus downgraded Fox Corp (NASDAQ:FOXA) to a Hold rating (from Buy) and removed the stock from their Focus List following an adverse ruling for Fox in the Dominion Voting Systems case.
Dominion sued Fox in 2021 over statements made on the Fox News and Fox Business News cable channels that accused Dominion of election fraud in the 2020 presidential election. On March 31, a Delaware Superior Court judge ruled on motions for summary judgment by both parties in the Dominion Voting Systems v. Fox News Network/Fox Corp. Judge Eric Davis granted Dominion’s motion in part and denied it in part and denied Fox’s motion. The case will now go to trial, which is set to begin on April 17.
Argus believes that the ruling on the case raises downside risk for FOXA shares, writing in a note, “Litigation is by nature uncertain, and Fox could still prevail, limit the damages awarded, or appeal to a higher court. However, with the Delaware court judge’s recent ruling, we believe that Dominion’s case will be much easier to prove at the upcoming trial.”
Argus continued in the note, “We had thought that First Amendment protections might shield Fox from Dominion’s claims in the case. However, the judge’s opinion specifically disallowed those protections, and emphasized (using bold, uppercase, and italic type) that the evidence developed in the proceeding “demonstrates that [it] is CRYSTAL clear that none of the Statements [made on the air by Fox hosts and guests] relating to Dominion about the 2020 election are true.” The judge nonetheless denied the portion of the Dominion motion claiming that Fox’s statements about Dominion constituted “actual malice,” which we believe would require determining the mindset of specific individuals making the false statements. According to the opinion, “ ‘actual malice’ means that a defendant published false information about a plaintiff ‘with knowledge that it was false or with reckless disregard of whether it was false or not.’ ” While the preponderance of evidence noted in Dominion’s motion and released publicly over the last few months suggests that this standard has also been met, the final decision will be up to a jury.”
The judge’s March 31 opinion represents a serious blow to Fox’s defense. Additionally, Fox has already suffered significant reputational damage due to the release of the deposition transcripts of Fox executives and on-air personalities and other unflattering evidence, which Dominion has used to support its motion. Dominion is seeking $1.6 billion in damages.
Argus maintained an FY23 EPS estimate of $3.48 and an FY24 forecast of $3.39.
Shares of FOXA are down 0.52% in afternoon trading on Thursday.