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Summary

  • The company beat on the bottom line but missed top line consensus.
  • We still have a long-term bullish thesis on the stock with ultimate buyout potential.
  • The recent quarter strength is very encouraging and right in line with where we saw the company operating.

Starz (NASDAQ:STRZA) managed to post 2Q earnings of $0.62 a share (beating consensus of $0.49) and revenues were $410 million (missing $443 million consensus). During the quarter, the company reported OIBDA that was up 25% y/y and it added 100,000 subscribers for the quarter (compared to a total of 200,000 subscribers it has increased for the last year).

Shares are up 22% since we first profiled the company in June of last year and up 16% since our August article. We still believe fair value is close to $41, suggesting there's still close to 50% upside. As we noted in June,

A big positive for Starz is that the company is looking to get out in front of the market. The company plans to offer its programs on the Kindle Fire and Kindle Fire HD, which is part of its TV Everywhere services; this service is already available on the iPhone, iPad and Android. Time Warner Cable also signed a multi-year deal with Starz that will give Time Warner Cable subscribers access to Starz's fifteen multiplex networks, in addition to the flagship Starz and Encore channels, as well as access to Starz's branded TV Everywhere service, akin to HBO Go.

With the pay-TV desperate to keep subscribers (think Fox trying to buy Time Warner), a buyout of the $3 billion market capped Starz might be back on the table.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Source: Update: Starz Earnings

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