Welcome to the Stock of the Day.
With video streaming services gaining in popularity, the 21st Century has brought in new challenges for movie theatres—and to many movie producers, for that matter. However, there’s always an exception to the rule. Hunger Games producer LionsGate Entertainment Corp. (LGF) just released exceptional third-quarter earnings last night. While the company topped expectations for the last quarter, with such fierce competition can it keep the momentum going? Find out today.
Lions Gate Entertainment is an up-and-comer that has thumbed its nose at the conventional film industry wisdom. Instead of circling the wagons during the last recession, it released blockbuster after blockbuster. And the excitement behind these movies is propelling this independent filmmaker into the orbit of Hollywood’s biggest studios.
For the past several years they’ve captured top spots at the box office with nearly every release. This motion picture company is best known for the incredible popularity of its Twilight and The Hunger Games series. Lions Gate has a television segment that has had hit franchises for several years. All told, the company produces and syndicates 19 television shows, which air on 14 networks and is distributed in approximately 200 markets worldwide.
The film studio operator announced record profits for the fiscal third quarter. The company’s revenue climbed 13% year-on-year to $839.9 million, while earnings more than doubled to $88.8 million, or 59 cents per share. After adjusting for one-time items, the company earned 64 cents per share. Analysts were looking revenue growth of 13.1% to $841.0 million and 70.4% year-on-year earnings growth to 46 cents per share, so Lions Gate posted in-line revenues and a 39.1% earnings surprise. With the next installment in the Hunger Games series coming out this fall, LionsGate’s earnings prospects remain bright.
LionsGate is somewhat unique among movie producers in that it is publicly-traded. It’s main competitors, including DreamWorks Studios, Imagine Entertainment and Metro-Goldwyn Mayer Inc. are all privately-held. So let’s look at how LionsGate stacks up against the Movie Production and Theaters industry as a whole. Out of the 16 players in this business, LionsGate is the largest in terms of market cap. LionsGate also ranks first on return on equity and third on dividend yield. So there’s little doubt that LGF is one of the first stocks you should consider if you’re looking to invest in Hollywood.
Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. LGF, a conservatively ranked stock, has remained firmly in buy territory over the past year or so. What makes Lionsgate stock such a strong candidate for your money is the current level of institutional buying pressure supporting this stock. This is shown by LGF’s A-rated Quantitative Grade.
Meanwhile, with the latest earnings results, I expect Lions Gate’s C-rated Fundamental Grade to firm up to a B-rating. LGF currently receives poor marks for sales and earnings growth, but once I plug in the latest numbers that should change instantaneously.
Bottom Line: As of this posting I consider Lionsgate stock a B-rated Buy.