Fairfax Media Share Price Down 23%. Time to Buy?

In the past month, Fairfax Media Ltd [ASX:FXJ] has dropped 23.2%. The stock now trades around 96.2 cents per share with a market cap of $2.2 billion.

What caused the 23% drop in Fairfax Media’s Share Price?

You’re probably familiar with the bidding war over the media company. Both TPG Group and Hellman & Friedman wanted a piece of Fairfax. But instead, the company has decided to pursue its plans to spinoff Domain.

The decision to forget about a takeover has caused the stock’s recent fall. But have investors oversold the company? Surely, if TPG Group was willing to pay $1.20 per share, the company must be worth buying at 96.2 cents?

According to Morgan Stanley, there’s still a lot to like about Fairfax. As reported by The Australian Financial Review:

TPG Capital and Hellman & Friedman may have walked away from Fairfax Media, but Morgan Stanley remains bullish on the publisher’s prospects.

Analyst Andrew McLeod has kept his $1.50 share price target for Fairfax, which is well above the bid of both US-based private equity firms. Less bullish are Citi’s David Kaynes, with a price target of $1.06, and UBS analyst Eric Choi, with a target of $1.

Is now the time to buy Fairfax shares?

I don’t blame you if you’re scared of jumping into Fairfax. The company generates a negative earnings per share of 37 cents. And the company really only has one growing business — Domain.

Instead of Fairfax, I would set my sights on Domain.

Investing in spinoffs can be a very promising strategy. A lot of the time, businesses are spun off simply for the benefit of shareholders. The idea is that with its own management and strategy, the spinoff business will do far better on its own than within a conglomerate structure.


Härje Ronngard,

Junior Analyst, Money Morning

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