Lions Gate Operates In The Sweet Spot Of Content Providers

Lions Gate Entertainment Corp. (USA) LGF LGF hosted its first ever Investor Day on Tuesday. Although management provided few new numbers, there was optimism regarding strategy, Brean Capital’s Alan Gould said in a report. He maintains a Buy rating on the company, while raising the price target from $30 to $32.

“LGF operates in the sweet spot of the media business focused on content creation and management has a strong acquisition track record,” Gould wrote.

Acquisition Strategy

The Investor Day highlighted the strategic and financial value of the Starz acquisition. The purchase significantly diversifies LionsGate’s business, is highly accretive and has increased the visibility into the company’s earnings and cash flow, Gould mentioned.

“We anticipate rapid de-leveraging resulting from the Starz acquisition,” the analyst commented. He added that Lions Gate was well positioned as “either an acquirer, or an entity to be acquired, in what we believe will be a consolidating entertainment industry.”

The estimate for Lions Gate’s free cash flow for FY 2018, which would be its first full year as a combined company, is at $455 million, or roughly $2 per share. This means that the blended shares are currently trading for less than 13x free cash flow. Gould added that LGF.B shares were preferable to the LGF.A shares, especially if they were trading at a discount of 5 percent or more to the LGF.A shares.