Analyst Upgrades Starz Stock Citing Buzz for 'Da Vinci's Demons'

9:51 AM PST 04/10/2013 by Georg Szalai
Starz
"Da Vinci's Demons"

Lazard Capital's Barton Crockett also cites possible earnings upside in raising his rating from "sell" to "neutral."

Lazard Capital Markets analyst Barton Crockett on Wednesday upgraded the stock of premium TV company Starz from "sell" to "neutral," citing positive reviews for its latest original show and possible earnings upside.

"After long-term fears ease, short-term opportunities rise," the title of his report said. John Malone's Liberty Media spun off Starz into a separate company and stock early this year.

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"Since its [recent stock market] debut, the long-term concerns we had have been answered positively -- a Sony [output deal] was renewed without a big step-up in cost, and Starz has regained a modest measure of pricing leverage in distributor renewals," Crockett wrote. "Now, we face the prospect of near-term positives."

Among those, Crockett cited "upside versus consensus in first-quarter [earnings] and a potential new hit TV show, Da Vinci's Demons, debuting this Friday."

He pointed out positive early reviews for the show. "Starz bulls have argued that all Starz needs is one or two hit shows to perk up revenue growth from the flattish pace now to the mid-to-high single-digit levels seen by peers HBO and Showtime," Crockett said. "We disagree, and believe that those networks generate revenue growth partially from being part of conglomerates [Time Warner and CBS Corp., respectively] with multiple networks in tandem with great originals. Still, if Starz has a hit, the stock could react well."

Discussing first-quarter earnings, Crockett cited his operating cash flow estimate of $124 million, down 2 percent year over year. That is ahead of the Wall Street consensus estimate of $117 million.

"Our estimate looks reasonable and could be positive for the stock near term if attained," the analyst wrote. "We understand that some investors are concerned that [operating cash flow] can't grow from the fourth quarter as that quarter had the benefit of unusually low-profile shows (second-tier movies and no new original launch) that drove low programming and marketing costs. But that was partially offset by unusual content write-downs."

As of 11:55 a.m. ET, Starz's stock was up 2.1 percent at $21.77. That was near its high of $22.30 set late last month.

Email: Georg.Szalai@thr.com
Twitter: @georgszalai

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