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On Friday, Raymond (NSE:RYMD) James analyst Brent Penter increased the price target on Starz Entertainment (NASDAQ:STRZ) to $22.00 from the previous $19.00 while reiterating an Outperform rating for the company. This adjustment comes after Starz reported its first quarter of 2025 results, which included a beat on key performance indicators (KPIs) and financials. According to InvestingPro data, the stock has shown remarkable momentum with a 47% return over the past six months, though its current market capitalization stands at a modest $276 million. The company also provided operating income before depreciation and amortization (OIBDA) guidance for the calendar year 2025, which aligns with expectations at approximately $200 million.
The revised price target reflects the analyst’s confidence in Starz’s performance following the company’s separation from Lions Gate Entertainment (LION). As a result of the split, Starz has altered its fiscal year-end to December 31, moving away from the previous March 31 year-end. The firm’s 10-K for the fiscal year 2025 is anticipated to be filed in June, with the second-quarter report of 2025 expected in August.
Starz has been recognized as a "misunderstood asset" by the analyst, with a notable 70% of its revenue now being generated from digital and streaming services. Although the remaining 30% from linear broadcasting is considered a headwind, it is a smaller exposure than some of its media peers, such as Paramount Global (PARA), Warner Bros. Discovery (NASDAQ:WBD), and AMC Networks (NASDAQ:AMCX). InvestingPro analysis reveals the company generated $1.39 billion in revenue over the last twelve months, with a healthy gross profit margin of 47%. Unlike these traditional media companies, Starz’s OIBDA is projected to grow in the near to mid-term.
The analyst notes that volatility in Starz’s stock is likely due to its small market cap and low enterprise value to EBITDA (EV/EBITDA) multiple, which is contrasted with its net leverage of approximately 3.1 times. Additional financial details and content spending as a standalone entity remain to be seen, especially considering content cash payouts to Lions Gate that may impact free cash flow (FCF) in the calendar year 2025.
Despite these challenges, the analyst believes that Starz’s stock is appealing. With manageable leverage targeted at 2.5 times, the potential to generate over $100 million in cash per year against a total net debt of approximately $600 million, and the prospect of growing OIBDA over time, the company is seen as an attractive investment. InvestingPro indicates the stock is currently trading slightly below its Fair Value, with analyst targets ranging from $15 to $30. While the company faces some financial headwinds with a debt burden of $833 million and a current ratio of 0.41, its overall Financial Health Score remains GOOD at 2.59 out of 5. Now independent of the Lions Gate umbrella, the valuation gap is expected to become more apparent to investors, which has already been reflected in recent trading activity. The analyst suggests that there is still potential for the stock’s value to increase further.
In other recent news, Starz Entertainment has been the focus of analyst attention with two firms initiating coverage and providing optimistic assessments. Raymond James has rated Starz as Outperform with a price target of $19. Analyst Brent Penter from Raymond James highlighted Starz’s transition to a digital/streaming service, which now accounts for 70% of its revenue. Penter noted the company’s manageable leverage and potential risks from larger streaming competitors but remains positive about its valuation. Meanwhile, Seaport Global Securities assigned a Buy rating with a $30 price target, suggesting significant value appreciation potential. The firm emphasized Starz’s strong free cash flow conversion and debt reduction efforts, which could imply an average valuation of around $46 within the next year. Seaport Global also mentioned the undervaluation of Starz compared to its linear network peers and its strategy to grow its subscriber base through original content. Starz is expected to report its earnings after the market closes on May 29.
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