As media properties go, Starz (STRZA - Get Report) has little of the cache of Netflix (NFLX - Get Report), the streaming powerhouse that has all but remade the public's view of paying for premium content.
Netflix's has been an absolute marvel, disproving any and all naysayers who forecast that its stock couldn't go any higher. Shares have surged 107% over the past year compared to the S&P 500 (^GSPC) that has gained 20% over the past 12 months.
But when it comes to valuation, Starz is an attractive company, and compared to Netflix presents at least the possibility of greater upside potential. The Englewood, Colorado-based subscription video-programmer and distributor has gained 57% over the past 12 months.
For those unfamiliar with Starz Networks, the company was spunoff from Liberty Media Corporation (LMCA) in January 2013, and according to its web site, counts combined 57 million subscribers, making it the largest premium channel in the United States, dwarfing the subscriber numbers of Netflix.
Starz is currently valued at 14 times price-to-earnings on revenue of $1.8 billion, a modest two-times sales. By comparison, Netflix trades at 197 time earnings on sales of a larger $4.4 billion.
Free cash flow, the money left over after all bills have been paid, came in at an astounding $1 billion for Starz last year. This extra cash has allowed Starz to embark on an active share repurchase program that has resulted in the company repurchasing 10.5% of its shares in the last 14 months alone.
From the chart below you can see what is called a "flag formation'. It is a bullish chart set-up for a stock that can lead to very nice upside moves. Starz has broken out from this flag formation today, and a continuation above the all time high at $33.75 should lead to a move to $37+.
Much of the attention on Netflix over the last year has been its move to create its own content. Starz was actually ahead of Netflix in this move to original programming and is projecting 65-75 hours in the coming year.
As the consolidation in content media players continues, the few remaining companies left, such as Starz, will only see their value increase. Investors considering if Starz is undervalued relative to its peers should note that Warren Buffet, with 5% of the stock, is the fifth largest Starz shareholder.
At the time of publication the author owned shares in STRZA.