Should You Buy Lions Gate Stock Ahead of Earnings? - Analyst Blog


by Thomas Young

Lions Gate Entertainment ( LGF ) , the name behind such films as The Expendables , Divergent , and The Hunger Games , is down about 19% this year and roughly flat over the last 365 days. The recent rough patch has come on the heels of an incredible run, with Lions Gate going from a market value of around $787 million in March 2011 to about $5 billion in September 2013. However, since September 10, 2013, Lions Gate has lost about $1.5 billion in market value.

With the studio showing recent signs of decline, why would Lions Gate be a buy? Here are three great reasons:

First, Lions Gate has some very high potential movie deals in the pipeline, including the recently announced deals on a live action Mighty Morphin Power Rangers, New York Times bestseller Hatching Twitter TV series, and the Hunger Games: Mockingjay Parts 1 and 2. Concerns that Lions Gate doesn't have any new high-grossing movies to replace Twilight's revenue appear overblown.

Second, Lions Gate has a history of beating analysts' estimates. In December 2012, Lions Gate beat analysts' estimates by 54%. The following quarter the company only beat analysts' estimated by 16%. Then LGF thoroughly crushed estimates in June and September 2013, coming in 233% and 214% above target. And in the most recent announcement, December 2013, Lions Gate "only" beat analysts' estimates by 16%.

Lions Gate looks to release their quarterly earnings numbers in the week of May 26. With a history of beating analysts' estimates and no sign of any negative surprise priced into the market value, there's a good chance Lions Gate will pop at the end of the month following the release:

Lions Gate Entertainment Inc - Earnings Surprise | FindTheBest

Third, Lions Gate has performed somewhat weakly against its entertainment peers. Given that Lions Gate has world class creative talent and a seasoned executive team, if there's any reversion to the mean, Lions Gate is the perfect example.

With the PowerShares Dynamic Leisure & Entertainment ETF ( PEJ ) up about 100% on a year over year basis compared to Lions Gate's flat return, it certainly appears that investors simply need a reason to push the stock up. The May 26 earnings announcement could be that trigger.

Motion Picture and Video Production Companies | FindTheBest

Bottom Line

Overall, Lions Gate appears set for some strong returns in the coming months, being driven by strong projects in the pipeline, a proven history of beating analysts' estimates, as well as having a beaten-down stock ready for the rebound.

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LIONS GATE ETMT (LGF): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: LGF , PEJ

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