Lions Gate's acquisition of Starz to propel shares 31 percent, Stifel predicts

Published Fri, Oct 28 201611:01 AM EDT

Shares of Lions Gate were upgraded to buy from hold by Stifel on Friday, citing the proposed merger with Starz as a catalyst to propel the stock up more than 30 percent in the next 12 months. The investment house also gave its predictions on future M & A in the media and entertainment space, including a potential bid for Epix by Lions Gate. " Starz is the likely engine that pulls the LGF train," wrote equity analyst Benjamin Mogil in reference to a $4.4 billion deal between Lions Gate and Starz announced in June. "With Starz contributing 70 percent of consolidated post-merger EBITDA [earnings before interest, taxes, depreciation and amortization], what we view to be continued improvement in Starz's fundamentals pulling through the entire entity despite what continues to be a weak slate at Lions Gate," he said. The expected combination with Starz, however, is projected to improve Lion Gate's fundamentals, according to Stifel, which on Friday also upgraded shares of Starz to buy from hold. "We continue to view premium TV because of the lack of ratings (from an ad supported perspective) and OTT [over-the-top] options as being in the sweet spot in media," said Mogil. The analyst explains that premium content, especially original series, have nearly doubled from 2009 to 2015, a trend that highlights the ability of premium channels to monetize programming. In the months ahead, he thinks further consolidation in the industry could take place. Mogil writes: "While most of the commentary around M & A for LGF has focused on either other John Malone entities or other one-off companies such as AMC Networks, we view EPIX as the most likely near-term candidate. Assuming a CBS/Viacom merger comes to be, EPIX is effectively an orphan asset because of Showtime. We would view an EPIX inclusion in the LGF/Starz business as both adding a movie channel, which complements Starz which as the Disney product rolls off, and would create a combination which would generate 80% of EBITDA from premium TV and likely an attractive option for EPIX holders such as MGM to maintain a stake in a premium TV company." On Friday, Stifel boosted its Lions Gate 12-month price target by 18 percent to $26 from $22. The new estimate implies a gain of 31 percent from Thursday's close. — CNBC's Michael Bloom contributed to this story.

Michael Burns, vice chairman of Lions Gate Entertainment Corp., left, and Jon Feltheimer, chief executive officer of Lions Gate.

Jonathan Alcorn | Bloomberg | Getty Images

Shares of Lions Gate were upgraded to buy from hold by Stifel on Friday, citing the proposed merger with Starz as a catalyst to propel the stock up more than 30 percent in the next 12 months.

The investment house also gave its predictions on future M&A in the media and entertainment space, including a potential bid for Epix by Lions Gate.

"Starz is the likely engine that pulls the LGF train," wrote equity analyst Benjamin Mogil in reference to a $4.4 billion deal between Lions Gate and Starz announced in June.

"With Starz contributing 70 percent of consolidated post-merger EBITDA [earnings before interest, taxes, depreciation and amortization], what we view to be continued improvement in Starz's fundamentals pulling through the entire entity despite what continues to be a weak slate at Lions Gate," he said.