Lions Gate Entertainment’s Price Target Cut by Barrington to $27 From $34

Lions Gate Entertainment (LGF.A) received a reduction to its price target late Friday from Barrington Research as the firm adjusted its valuation on the movie-and-television production company’s stock to reflect the increasing role of Starz in its business mix.

Barrington’s new price target on Lions Gate’s Class A stock is $27 per share, down from its prior target of $34 but still above the stock’s Friday closing price of $22.96 as the firm kept its investment rating on the shares at outperform.

In a note to clients, Barrington highlighted that Starz is “gaining in importance as Lionsgate shifts [the] balance of operations.” The firm said Starz is “ascending in [a] crucial central role within [the] business mix.” Lions Gate Entertainment acquired Starz in late 2016.

Barrington thus said its new price target on Lions Gate’s stock is based on a target multiple of about 13 times its estimate for fiscal 2019 operating income before depreciation and amortization, adding “this valuation blends the higher multiples typically assigned to the more volatile, but growth-focused traditional Lionsgate operations with more conservative valuations on the steadier Starz business that is now the subject of a growth infusion.”

The firm noted that “with the scale provided by Starz, operational results are not dependent on big-budget films for top-line growth, as was experienced during the run of ‘Hunger Games’ releases.” It added: “Lionsgate pursues greater flexibility in taking less risk with content-production decisions.”

Barrington also highlighted that when Lions Gate Entertainment released its fiscal Q1 results earlier this month, its adjusted earnings per share and revenue both topped analysts’ expectations. It described the beat as being “mainly driven” by better-than-expected results from the company’s motion-pictures segment.

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