Lions Gate Entertainment Corp.’s stock roared again last week after shares were temporarily caged by a surprise quarterly loss reported late last month.
That made the stock one of the biggest gainers on the LABJ Stock Index for the week ended June 13, closing up 8.5 percent to $13.82. (See page 62.) The stock of the Santa Monica independent studio tacked on an additional 2.8 percent the next day to put it up 71 percent for the year.
Investors bought into the dip, with many likely sizing up box-office gains from “The Hunger Games,” which has grossed about $648 million worldwide, said David Joyce an analyst at Miller Tabak + Co. in New York.
“People sold off the stock too far when they sold (because of) the earnings,” Miller said. “It deserves to be coming back.”
The majority of the “Hunger Games” box-office revenue will be recorded in this quarter rather than last, since the movie opened domestically just prior to the close of last quarter.
Investors also were likely willing to look past the $23 million fourth quarter loss in part because it could be attributed to $51 million in expenses related to the acquisition of independent studio Summit Entertainment, which gave Lions Gate the “Twilight” franchise. The losses also were driven by marketing expenses related to “Hunger Games.”
Of 11 equity analysts that cover the company, nine rate the stock “buy,” one “sell” and one “neutral,” or their equivalent. Earlier this month, analysts at Toronto’s RBC Capital Markets upgraded the stock to a “buy” equivalent, and Joyce sees more upside, too.
He reiterated his “buy” rating on the stock and raised his sales estimates for the studio last week by about 34 percent, forecasting $2.12 billion in revenue for the fiscal year that ends March 31. He cited strong DVD sales from “Twilight: Breaking Dawn,” which went on sale in February and sold 5 million copies in its first two weeks. He expects the DVDs to add to the studio’s cash flow this quarter, since retailers often take months after stocking their shelves to pay studios.
Meanwhile, Lions Gate is growing its television business: a division of the studio produces the acclaimed “Mad Men” on AMC and Charlie Sheen’s new sitcom “Anger Management,” which will debut on FX on June 28.
But Joyce said investors likely returned to the stock last week for less flashy reasons, too. The studio made new commitments this month to paying down debt. In two regulatory filings, the studio announced plans to redeem about $42 million of convertible notes for cash or stock in mid-July.
“The thing that is possibly driving it is redeeming the converts,” Miller said. “(Investors) go long and buy the convert.”
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