Lions Gate Entertainment (NYSE:LGF.A) (NYSE:LGF.B) was in focus on Monday as J.P. Morgan upgraded the entertainment company, ahead of the upcoming separation of its Starz and Lionsgate Studio businesses into two separate public companies.

Shares rose 2% in premarket trading. 

“The split opens room for value creation and at the very least eliminates an unfavorable structure for investors that drove part of our prior negative view,” analyst David Karnovsky wrote in a note to clients. “At the same time, Lionsgate’s Motion Pictures segment has lapped a difficult period and we’re more optimistic on the upcoming slate which should drive better theatrical performance in F26 and attendant downstream windows, the latter now further supported by a new Amazon agreement. Regarding Starz, we’re incrementally positive on the asset after a full court press from management explaining the medium-term outlook, though continue to have long-term concerns given the competitiveness of the streaming market.”

Karnovsky raised his rating on Lions Gate to Neutral from Underweight and upped his price target on the combined company to $9 from $8.

At current levels, Lionsgate Studios trades at slightly below 11 times EBITDA estimates for fiscal 2026, which would imply Starz is worth roughly 3 times EBITDA, below competitors such as AMC Networks (AMCX).

Looking to fiscal 2026, he expects Studio EBITDA to be $361M, due in part to a better theatrical slate, including movies such as Now You See Me 3, Ballerina and Michael, the biopic about pop star Michael Jackson. Looking to fiscal 2027, a new Hunger Games movie should help, as well as any adjustment to pay 1 windows. 

For Starz, revenue should grow between 1% and 3% out to fiscal 2028 (according to management commentary), due to digital subscriber gains, rate increases, bundling and a new deal with Amazon (AMZN). Margins could rise to around 20% as well, with Starz taking more ownership of its content, compared to where it is currently.

“Overall, while we are encouraged by the long-awaited split and Starz’s plans, we lack conviction on multiple upside for both pieces and continue to see execution risk generally across the segments; given this view, we’re more comfortable on the sidelines into the separation,” Karnovsky added.

Lions Gate shareholders are scheduled to vote on the separation on April 23.