Lions Gate Valuation Suggests Subdued Expectations For Starz Acquisition

Wunderlich’s Matthew Harrigan expects to gain better clarity regarding Lions Gate Entertainment Corp. (USA) LGF management’s long-term targets at the analyst day to be held on January 10.

Harrigan maintains a Buy rating on the company, while raising the price target from $26 to $31.

Analyst Day Expectations

The analyst also expects management to provide “a better sense for direct to consumer offering and original programming upside at Starz Acquisition LLC STRZA, coupled with financial engineering latitude off $400+ million in prospective free cash flow.”

Harrigan believes there will continue to be creative autonomy between Lions Gate TV and Starz, even while TV distribution efficiencies are maximized.

Future Expectations

The analyst also expects solid global IP right retention to lead to “better economics” for both Lions Gate Entertainment and Starz.

“LGF can now look at prospective sales of TV content to Starz in the context of attracting new eyeballs rather than just immediate nominal economics, while providing appropriate content to a gamut of broadcast, basic, and premium partners,” Harrigan explained.

The analyst pointed out that Starz continues to achieve robust results in terms of direct to consumer sales, while its app now has more than 1 million customers.

In addition, “OTT marketing can benefit from Starz's agility in approaching underserved demographics, exemplified by the urban appeal and exemplary Xfinity metrics for Power,” Harrigan stated, while adding, “Lions Gate also has ample latitude for further strategic moves, including possibly monetizing its 32 percent Epix ownership.”