On Friday, Citi initiated coverage on Lionsgate Studios Corp (NASDAQ:LION) stock with a Buy rating and set a price target of $14.00. The coverage begins as Lionsgate is recognized for its consistent performance as a standalone content creator.
The firm's recent decision to spin off Starz, expected to be finalized by the end of the 2024 calendar year, is anticipated to potentially enhance the company's market valuation.
The analyst at Citi highlighted Lionsgate's historical success, noting its established track record in the entertainment industry. The Buy rating reflects confidence in the company's strategic move to separate its Starz entity, which could result in a reevaluation of Lionsgate's stock by the market. The analyst's optimism is based on the potential for expansion of the company's trading multiples following the completion of the spin-off.
The price target of $14.00 is based on a 13 times multiple of the expected FY25 enterprise value to EBITDA (EV-EBITDA), which represents a slight discount compared to Lionsgate's average EV-EBITDA multiple from FY10 to FY15.
This period is significant as it predates the company's acquisition of Starz. The comparison suggests a conservative valuation that acknowledges the company's historical market performance while also accounting for future growth potential.
The strategic move to spin off Starz is seen as a key driver for Lionsgate's future financial performance. The separation is aimed at allowing both entities to focus on their core strengths and market dynamics, potentially leading to increased investor interest and an upward re-rating of Lionsgate's market value.
Lionsgate Studios Corp's stock will continue to be monitored by investors as the company progresses towards the Starz spin-off and works to achieve the financial targets outlined by Citi's coverage.
InvestingPro Insights
InvestingPro data reveals that Lionsgate Studios Corp (NASDAQ:LION) is navigating through challenging times, with recent performance metrics indicating a significant downturn. The company's market capitalization stands at $2.34 billion, and it is currently trading at a high P/E ratio of 49.71, reflecting investor expectations for future earnings growth. However, the adjusted P/E ratio for the last twelve months as of Q3 2024 is a negative 60.66, signaling potential concerns about profitability. Additionally, the stock has experienced a notable decline, with a 1-month price total return of -24.67% and a 3-month price total return of -24.11%, which positions the stock near its 52-week low, with the price at 63.1% of the high.
Despite these challenges, InvestingPro Tips suggest there may be opportunities for investors. The stock's RSI indicates it is currently in oversold territory, which could attract buyers looking for a potential rebound. Moreover, Lionsgate's valuation implies a strong free cash flow yield, which might be appealing to value-oriented investors. For those considering adding LION to their portfolio, these insights could be valuable in making an informed decision. Visit https://www.investing.com/pro/LION for additional tips, including 6 more InvestingPro Tips not listed here, and use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
As Citi initiates coverage with a Buy rating and a price target of $14.00, these InvestingPro Insights provide a broader context for Lionsgate's current market position and potential investment considerations as the company approaches its strategic spin-off of Starz.
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