Former Dreamworks Shareholders Might Look To Lions Gate Shares As A Replacement Position

DreamWorks Animation and NBCUniversal, a division of Comcast Corporation (NASDAQ: CMCSA), announced their intent to merge in April and the deal was officially completed on Monday.

DreamWorks shareholders will receive $41 in cash for each share owned and investors who are bullish on the studio entertainment space might be looking for new venues to park their cash.

Related Link: Comcast's NBCUniversal Confirms $3.8 Billion Buyout Of Dreamworks

According to analysts at B. Riley, the "clearest" content play in the space is Lions Gate Entertainment Corp. (USA) (NYSE: LGF). In fact, the analysts believe Lions Gate's stock has been "overly punished" for the better part of the past year due to weaker-than-expected performances from several of its films.

The analysts added that Lions Gate boasts a diversified film slate in the pipeline and even if none of the films end up being a major blockbuster hit, the company could still generate greater revenues and profits compared to last year.

The analysts further suggested that Lions Gate's TV Production segment has been "overlooked" and the segment should achieve $1 billion in revenue next year along with improved margins.

Also, Lions Gate has several investments that it will begin to monetize this year which are not reflected in the stock price and will positively contribute to its EBITDA.

Finally, the analysts remain positive on Lions Gate's proposed acquisition of Starz as an "additional diversification step" and also provide a recurring revenue stream from Starz's subscriber base.

Bottom line, a combination of Lions Gate and Starz could generate more than $2.50 per share in free cash flow in 2017 and an appropriate 13x multiple (comparable to other media companies) derives the analyst's price target of $34 and corresponding Buy rating.