Lionsgate’s stock got support from Cowen & Co. analyst Doug Creutz, who in a Thursday report called it “our best idea among our covered small-and mid-[sized] names.”
Reiterating his “outperform” rating and $14 price target on the stock, he called Lionsgate an “under-appreciated [streaming] play.” And he told investors: “We view the recent share weakness as an opportunity to own Lionsgate stock at an attractive valuation given likely revenue and free cash flow acceleration into 2021.”
Starz global streaming subscriber count stands at 10.6 million, but is expected to reach 13 million-15 million by the end of the year, “at which point they will likely be over 50 percent of total subscribers,” the analyst highlighted. “In addition, management laid out a target for 15 million-25 million total Starz Play international subscribers by 2025 end, up from 5 million currently. We think the international opportunity is being assigned a negative value (based on current losses impacting earnings before interest, taxes, depreciation and amortization) in Lionsgate’s overall valuation.”
Creutz agued that Lionsgate’s assets also make it “relatively attractive compared to most of its media peers,” particularly amid the novel coronavirus pandemic and resulting recession. “Current valuation appears to exclude both any recognition that Lionsgate is less exposed to pandemic headwinds than advertising-exposed peers and the international Starz opportunity.”
Lionsgate shares have underperformed most of the broader media and entertainment sector since mid-February, he noted, adding: “However, Lionsgate is the media company which we view as the most insulated against pressure from COVID-19 due to the lack of parks or TV advertising exposure. We do expect some relatively modest disruption to earnings in fiscal year 2021-2022 due to the push out of a few summer films and disruptions to the TV and film production pipelines.”
But he estimated that this would have only a 9 percent impact on operating income before depreciation and amortization. “We expect earnings to be largely returned to our pre-COVID-19 estimates by fiscal year 2023,” Creutz said.
The COVID-19 impact came near the end of Lionsgate’s fiscal fourth quarter, but included the release of I Still Believe going early to VOD after only two days in theaters.