The movie making business, though often insanely-profitable, can be very hard to break into for upstart companies. However, Lions Gate Entertainment (LGF – Analyst Report) has managed to crack the code and successfully compete with the likes of Disney (DIS – Analyst Report),21st Century Fox (FOX – Snapshot Report)and others, thanks to its strong lineup of popular movie franchises.
Lions Gate in Focus
LGF is a Santa Monica, California-based company that is probably best known for the Hunger Games film series, though the company also has the distribution and production rights for the Twilight series andDivergent too. Thanks to these successes, LGF has been on an absolute tear over the past few years, as its stock has soared by over 440% in the past half decade, including a 130% gain in the past two years.
However, recent trading has been much less favorable for LGF, as the stock is pretty much flat over the past 52 week period. Still LGF has put up a very strong performance in the trailing three months, and there is plenty of reason to believe that this can continue, especially if we look at recent earnings, and current estimates.
For the most recent earnings report, LGF thoroughly crushed estimates, posting EPS of 27 cents a share, compared to an estimate of 13 cents per share. This made up for the previous quarter’s disappointing results, and helped to carry the four quarter average to a positive surprise of 81%.
Investors should note that while the current quarter is looking a little mixed from an earnings perspective, the next quarter and the full year appear to be in great shape. The consensus estimate for both of these periods has been soaring over the past month, including two revisions higher for the next quarter, and four higher for the full year in just the past week.
So clearly, analysts really liked the latest earnings report, and believe that LGF has a great near term future. This is particularly true once we get to the winter season as the next Hunger Games movie is slated to be released then, and it should be a huge boost to LGF, and especially so if it lives up to expectations.
For these reasons, we currently have a Zacks Rank #1 (Strong Buy) on LGF, and expect the company to outperform in the coming months. It is also worth noting that the stock is in a class of its own in the movie/TV industry, as it is the only company of 13 in the space that has a top Rank, and indeed the only one that has a Rank better than a 3 or ‘hold’.
LGF was an all-star performer following the financial crisis as many of its top movies became very popular. The stock took off as a result and led to huge gains for investors who bought in to the company and their growth story.
The company has seen its shares go through a bit of a consolidation phase recently though, as LGF is pretty much flat over the past year. However, given the strong product pipeline, rising estimates, and top Zacks Rank, now could be the time to jump back in to LGF and ride this stock for the next couple of months as some great fall and winter movies could carry this stock even higher to close out 2014.
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Author is long LGF