On Friday, Morgan Stanley resumed coverage on shares of Lions Gate Entertainment Corp. (NYSE:LGF-B), assigning an Overweight rating and setting a price target of $10.50. The firm based its assessment on the current market valuation of Lions Gate's assets, highlighting that the company's ownership of LION represents 95% of the parent company's equity value.
This evaluation suggests that the Starz asset is being valued at approximately $0.40 per share within Lions Gate, which translates to about 4 to 5 times forward EBITDA, assuming no holding company discount on LION.
The analysis by Morgan Stanley indicates that Starz is trading at the lower end of the spectrum compared to its peers. Despite this, the firm acknowledges several factors that could provide support to the asset. These include no advertising exposure, a higher mix of digital revenue, and a trend towards positive free cash flow.
The firm also noted that it holds a more conservative view on Starz's adjusted operating income before depreciation and amortization (OIBDA) compared to the consensus.
Morgan Stanley's coverage comes ahead of Lions Gate's earnings report, scheduled for August 8, 2024. The analyst pointed out potential headwinds to the first-quarter subscriber trends for Starz, which will be a key focus in the upcoming financial disclosures.
The Overweight rating implies that Morgan Stanley sees the stock performing better than the average stock within the analyst's coverage universe over the next 12 to 18 months. The price target of $10.50 suggests a potential upside from the stock's current trading levels.
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