Lions Gate's Investment Profile Is 'Simple To Digest,' Imperial Capital Says In Bullish Initiation

The bullish case for Lions Gate Entertainment Corp. (USA) (NYSE: LGF-A) (NYSE: LGF-B) is "simple to digest and investor-friendly," according to Imperial Capital.

The Analyst

Imperial Capital's David Miller initiated coverage of Lions Gate's Class B stock with an Outperform rating and $28 price target.

The Thesis

Lionsgate's team perfected a simple strategy of creating critically acclaimed TV series for all platforms and films that are not intended to be "home runs," but appeal directly to a certain demographic to generate a profit, Miller said in the initiation note. (See the analyst's track record here.)  

In fact, 81 percent of all films across every studio are unprofitable in the theater, but Lionsgate stands out by sticking to its formula to post profitability, the analyst said. 

The bullish case for Lionsgate's is also based on the 2016 Starz acquisition, which was completed at a "quite reasonable" $4.4-billion cash and stock price, Miller said. Investors assuming Starz ranks as the third-place pay network — behind HBO and Showtime — are incorrect, as it boasts 23.5 million linear subscribers with an incremental 2.1 million being over-the-top subscribers, good for second place, the analyst said. 

Cord-cutting concerns don't necessarily apply to Lionsgate's business given its suite of linear cable networks that derive minimal advertising revenue and do not distribute internationally, Miller said, adding that Lionsgate is likely the "cleanest of any name" in the small- and medium-size media subspace.

Price Action

Lions Gate shares were trading higher by more than 5 percent at the time of publication Thursday.  

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