With News of Berkshire Hathaway Inc. (BRK.B) Stake, Is Starz (STRZA) Still Attractive?

Pay-TV cable operator Starz (NASDAQ:STRZA), a spinoff from media conglomerate Liberty Media Corp (NASDAQ:LMCA), has done nothing but climb since its market debut less than a year ago. This past month, the company reported its first-quarter earnings for 2013, and while the numbers came up short of analyst expectations, there was plenty of encouraging news for the long-term viability of the company. Just this past week, it was announced that Berkshire Hathaway Inc. (NYSE:BRK.B) had amassed a nearly 5% position in the company, gained as a result of the firm’s sizable Liberty Media stake. The question now is, does the stock still have room to run, or is this growth story coming to an end?

Earnings recap
Missing analyst estimates, revenue dipped about 1% for the company to $399.3 million. But with both its namesake Starz (NASDAQ:STRZA) network, as well as Encore, the company now has 56.7 million paying subscribers — by far the largest of any premium cable operator. One of Starz’s new series, Da Vinci’s Demons, debuted to a record high for opening-weekend numbers, and has been renewed for a second season.

Still, the company’s expenses and lowered sales kept the bottom line down. Operating income shrank 13% to $104.9 million, from $120 million in the year-ago quarter. On a per-share basis, the company earned $0.47, down from $0.65 one year ago. Analysts were expecting $0.49.

Management is sticking to its strategy of cautiously allocating capital toward original productions. Given the success of its recent series, and newly green-lit projects on the horizon, this remains a compelling strategy that should enhance shareholder value over the long term.

The future and valuation
After a more than 60% rise since its IPO, Starz (NASDAQ:STRZA) is currently trading at 13 times one-year forward earnings. Direct comps are difficult, since Starz is the only independently traded premium-TV play, but we can look at others, owned by larger media companies, for guidance.