Brean Capital Initiates Lions Gate At Buy, Bullish On Management
Lions Gate Entertainment Corp. (USA) (NYSE: LGF) management has an excellent record of creating value through acquisitions, Brean Capital’s Alan Gould said in a report. He initiated coverage of the company with a Buy rating and a price target of $27.
Lions Gate has recently offered $4.3 billion to acquire Starz (NASDAQ: STRZA) [Rated: Hold]. Analyst Gould projected $400-$450 million of free cash flow from Starz, including synergies. He added, “Strategically, the deal will reduce LGF's dependence on the film business and greatly reduce earnings variability.”
The deal is expected to provide cost synergies of $50 million and tax synergies of $150 million, resulting in $150-$210 million of incremental FCF after interest and taxes annually through at least FY2021.
John Malone’s economic and voting interests in Lions Gate would be 5.4 percent and 12.6 percent, respectively. Adding Malone’s indirect influence of Liberty Global plc (NASDAQ: LBTYA) and Discovery Communications Inc. (NASDAQ: DISCA), the economic and voting control increases to 9.8 percent and 19.0 percent, respectively.
“The largest shareholder would continue to be Mark Rachesky's MHR at 13.5% economic and 19.3% voting control,” Gould mentioned.
Commenting that management had an excellent record of successfully growing Lions Gate through acquisitions, the analyst added that the value creation at the company had been driven by “its series of accretive acquisitions, the estimated $1 billion of pretax profits generated from The Hunger Games franchise and a portfolio strategy that carefully manages the downside risks."
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Latest Ratings for LGF
|Dec 2016||B. Riley||Initiates Coverage On||Buy|
|Nov 2016||RBC Capital||Upgrades||Sector Perform||Outperform|
|Oct 2016||Morgan Stanley||Initiates Coverage On||Overweight|
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