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Starz Is Shining Bright

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Liberty Media spin-off Starz (NASDAQ: STRZA  ) continues to prove a phenomenal investment. Subscriptions for both Starz and Encore are on the rise -- adding to what is already the largest premium cable business around and helping bring the company's earnings up a massive 42%. The distribution arm isn't moving too quickly at the moment after having a more productive period a year ago, but that's OK as things look to continue growing healthily in the coming periods. Since its market debut as stand-alone company last year, Starz's stock has more than doubled from its $14 entry. Though the cable industry is in the midst of disruption, this may still be a great bet for investors.

High ratings
Starz and Encore make up the largest subscriber count in the premium cable industry, showing far greater numbers than Time Warner's HBO as well as CBS' Showtime. At this point, Starz has 22.2 million subscribers while Encore rose to 34.9 million. Starz led the charge with a million new subs, while Encore only brought on roughly 100,000.

The appeal of today's premium cable businesses revolves primarily around the original content offerings that many consider to be far, far superior to regular cable and network series. Starz has introduced a few new series in the past year and has plenty more in the pipeline, competing head-on with HBO, Showtime, and now Netflix and Hulu.

Sales ultimately fell 2%, though this was due to the distribution arm and fewer projects at Starz's animation studio, Film Roman.

Still a star
With more than 57 million total subscribers and strong results from its recently introduced series, Starz is in a great position to keep things moving forward in the future. The company debuted  its Michael Bay-produced pirate drama, Black Sails, to an average of 2.9 million viewers. This marks the strongest start to any Starz original series.

In the development pipeline are projects backed with serious celebrity ammo, from a 50 Cent-helmed project titled Power to a Lebron James/Tom Werner half-hour comedy called Survivor's Remorse, Starz will attract new viewers by curiosity if nothing else. What does a Lebron James comedy even look like?

Original programming is on track to grow its total hours by 65-75 in the coming years, according to CEO Chris Albrecht.

The bottom line
With the company's continued focus on content (including a great development team) and reaching more subscribers via new platforms such as Xbox One, there is little reason for Starz to slow down. What's better is that the potential for substantial growth is offered to investors for under 15 times forward estimated earnings. Direct comparisons are difficult considering that it is the only stand-alone premium cable business, but Starz doesn't look expensive on any front. HBO-parent Time Warner trades at 14.4 times earnings and Netflix is out of the ballpark with a forward P/E of 60 times. Of course, the latter will grow much faster than any of its peers mentioned here, but Starz's generous cash flow and earnings growth is nothing to shake a stick at.

All in all, this is one cable business with a bright future. While that may sound like an oxymoron these days, Starz's robust production and subscriber base illuminate just how much potential the stock holds.

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Michael Lewis

Michael is a value-oriented investment analyst with a specific interest in retail and media businesses. Before coming to the Fool, Michael worked with private investment funds focusing on deep value and special situations. Currently living in the media capital of the world--Los Angeles, California.

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