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Brean Capital Initiates Starz At Hold, Sees Limited Upside

STRZA, Lions Gate Entertainment Corporation NYSE:LGF - Brean Capital Initiates Starz At Hold, Sees Limited Upside

Brean Capital’s Alan Gould believes there is minimal upside to Starz (NASDAQ: STRZA) shares.

Gould initiated coverage of the company with a Hold rating.

The analyst mentioned there is much less upside than directly buying Lions Gate Entertainment Corp. (USA) (NYSE: LGF) as compared to the combined Lionsgate Starz. The deal is expected to close by the end of 2016.

Class A Shares

Starz Class A stock is currently trading at a 3 percent discount to the proposed offer from Lions Gate Entertainment, based on the latter’s current share price. Gould believes there would only be a 16 percent gain for Starz’s shares, as compared to a 32 percent gain for Lions Gate shares directly, since more than half the price is being paid in cash for Starz.

Class B Shares

The analyst also pointed out that since 78 percent of the value for Starz Class B shares was being paid in stock, the Class B shares would move at a similar rate to Lionsgate shares.

“However, there is minimal Class B float, 0.4 million shares, as the shares are largely held by John Malone, Lionsgate and Dob Bennett,” Gould cautioned.

In the “highly unlikely event” that the deal falls through, the analyst expects Starz to resume its share buyback, with the estimated $200–$300 million in free cash flow that the company is expected to be generating.

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DateFirmActionFromTo
Sep 2016Brean CapitalInitiates Coverage onHold
Aug 2016CLSADowngradesOutperformUnderperform
Jul 2016Pivotal ResearchDowngradesBuyHold

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