Lions Gate (LGF) Stock Stumbles on Starz Deal, KeyBanc Lowers Price Target

After announcing a $4.4 billion acquisition of Starz (STRZA) yesterday, Lions Gate's (LGF) stock price target was dropped at KeyBanc.
By Rachel Aldrich ,

NEW YORK (TheStreet) -- Shares of Lions Gate (LGF)  are down 3.39% to $20.23 in pre-market trade this morning as KeyBanc lowers its price target on the stock to $24 from $27.

The firm has an "overweight" rating on the Santa Monica, CA-based entertainment company that has produced blockbuster hits like "The Hunger Games."

This comes after reports yesterday that Lions Gate plans to purchase premium television company Starz (STRZA) for $4.4 billion in cash and stock. The companies expect the deal to close by the end of the year.

KeyBanc expressed skepticism over the deal in an analyst note released this morning.

"Despite near-term financial benefits, we believe Starz is likely to see long-term margin compression due to its deteriorating competitive position," the firm said.

KeyBanc noted that the combined businesses provide little potential for added incremental revenue due to Lions Gate's existing output deals and Starz's sales of international rights for its original programs.

The firm added that it didn't foresee significant savings in production or programming costs.

Negotiations between Lions Gate and Starz began months ago, but had cooled until just last week when the companies resumed talk of an acquisition.

"We expect the acquisition to be highly accretive, generate significant synergies and create a whole that is greater than the sum of its parts," Lions Gate CEO Jon Feltheimer and Vice Chairman Michael Burns said in a statement.

Separately, TheStreet Ratings rated this stock as a "hold" with a ratings score of C. 

The company's strengths can be seen in multiple areas, such as its revenue growth and expanding profit margins. However, TheStreet Ratings also finds weaknesses including deteriorating net income, generally higher debt management risk and disappointing return on equity.

You can view the full analysis from the report here: LGF

Recently, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author.

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