Raymond James sets Starz stock Outperform with $19 target

On Monday, Raymond (NSE:RYMD) James initiated coverage on Starz Entertainment (NASDAQ:STRZ) with an Outperform rating and a price target of $19.00. The firm’s analyst Brent Penter highlighted the potential of Starz, noting its transition from a premium cable channel to a digital/streaming service. Trading at a price-to-book ratio of just 0.24 and generating $800.1M in EBITDA, the company shows interesting fundamentals. Currently, 70% of Starz’s revenue comes from digital/streaming sources, whereas approximately 30% is derived from traditional linear channels.InvestingPro analysis reveals 12 additional key investment signals that could impact your investment decision.

Penter compared Starz favorably to its media peers, pointing out that its revenue mix is more digitally focused than Paramount, Warner Bros. Discovery (NASDAQ:WBD), and AMC Networks (NASDAQ:AMCX). With a market capitalization of $217.27M and annual revenue of $1.39B, he emphasized that, unlike AMC Networks, which derives 64% of its revenue from linear sources, Starz should not be considered a direct comparable due to its smaller size and standalone nature.

Despite acknowledging the volatility associated with Starz’s small market capitalization and the sensitivity of its stock price to earnings multiples, Penter sees the stock as attractive. He cited Starz’s manageable leverage, with a net debt/OIBDA ratio of approximately 3x, and its capacity to generate over $100 million in cash annually against a total debt of $832.7M. The company’s current ratio of 0.41 indicates tight liquidity management will be crucial.

The analyst also noted the potential risks, such as the emergence of ad-supported tiers from larger streaming competitors, which could threaten Starz’s complimentary position. However, Penter believes that now, free from the "LGF umbrella," the valuation disconnect of Starz is more apparent to investors, a sentiment that has been reflected in recent trading activity but is expected to continue positively.Get comprehensive financial health metrics and 12 additional investment signals with InvestingPro, including detailed cash flow analysis and growth projections.

In other recent news, Seaport Global Securities initiated coverage on Starz Entertainment with a Buy rating and set a price target of $30. The firm sees potential for significant value appreciation, citing Starz’s strong free cash flow conversion and debt reduction efforts. Analysts noted that Starz’s shares are currently trading at a discount compared to its peers, attributing this to market dislocation after a recent split. Seaport Global highlighted the company’s strategy to grow its subscriber base through original content, which could lead to increases in average revenue per user and EBITDA growth. Additionally, the firm anticipates margin expansion and further improvements in free cash flow conversion and debt reduction. Looking ahead, Seaport Global suggested that Starz’s valuation could potentially climb to $46 or even $56 as market sentiment improves. Starz Entertainment is expected to report its earnings after the market closes on May 29. These developments reflect Seaport Global’s optimistic view of Starz’s business model and potential future performance.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.