Takeover Speculation In MSG Networks Is 'Inefficient'; Loop Downgrades To Sell

Loop Capital’s David W. Miller believes the recent run-up in MSG Networks Inc MSGN shares was mostly driven by take-out speculations.

Miller downgraded the rating on the company from Hold to Sell, with a price target of $18.

Other Options

The analyst believes at the current levels, SMID Media investors should take profits and use the proceeds to acquire positions in the spin-co, Madison Square Garden Co MSG or in Lions Gate Entertainment Corp. (USA) LGF, which still seems cheap despite the 31.6 percent appreciation over the last eight weeks.

Subscriber Numbers

One of the reasons why Miller believes the recent run up in MSG Networks’ shares occurred is “the impression, whether accurate or not, that the subscriber declines seen in MSG and MSG+ as of the last earnings rotation were ‘less bad’ than what had been reported in previous earnings releases since the split of both companies in October of last year.”

Although MSG Networks did not disclose exact subscriber numbers for either of its Regional Sports Network for the last earnings period, management did mentioned that subscribership of both networks had dropped in the low single digits, although the decline was still an “improvement in the percentage rate of decrease.”

Miller estimated that the total number of households with MSG/MSG+ at present has decline from the 8 million in mid-2013 to 7.2 million, noting that “while the trend down may slow, it will likely still remain a trend down, especially in light of very little interest by any of the over-the-top distributors.”

Take-Out Unlikely

Another reason for the run up in the stock has been the take-out speculations, although the analyst expressed skepticism regarding such an outcome, given that potential acquirers did not seem to have any strong reasons to acquire the company.