Market high on future of young-adult franchises
Wall Street has continued to show bullishness toward Lionsgate as the stock hit another all-time high on optimism over its young-adult film franchises.
The stock soared 95 cents, or 4.2%, to $23.23 in trading Wednesday on a pair of price upgrades.
Stifel Nicholas maintained its buy rating and boosted its target price to $25 from $21, citing strength in all of its core units and better than expected economics on the upcoming “Ender’s Game” and “Divergent.”
“Ender’s Game” opens Nov. 1, followed by “Catching Fire” — the second “Hunger Games” title — on Nov. 22, and “Divergent” on March 21.
Based on Veronica Roth’s novel, ”Divergent” stars Shailene Woodley in the sci-fier in which society is split into factions based on human characteristics. Neil Burger directs.
“To be conservative, we are assuming that ‘Ender’s Game’ does not warrant a sequel while ‘Divergent’ does warrant a full film exploitation of the books,” the report said. “Given the likelihood that the company will have at least two major franchises through F2016, we believe that investors will increasingly use a standard EV/EBITDA valuation as opposed to a sum-of-the-parts method.”
B. Riley Caris also set a new price target of $27, citing similar reasons.
“After seeing shares of LGF run a heroic 71.3% over the last 11 months, we could very easily take a victory lap here but instead, are boosting our 12-month target once again, this time to $27 from $23, now the highest target on the Street,” the report said. “We believe neither the market, nor competing brokers, are factoring in the release of ‘Divergent’ as a hit title, book sales of which, ironically, are ahead of where ‘Hunger Games’ was as measured by time/trajectory. We believe this could be a $500 million worldwide grosser and hence, are improving numbers accordingly.”
The stock is now trading at more than triple the price of $7 a share in late August 2011, when the company bought out Carl Icahn’s 33% stake for $309 million. Lionsgate stock rose about 20% to $8.60 before it bought Summit Entertainment — originator of the “Twilight” franchise — for $412.5 million in January 2012.
The company’s most recent earnings report easily topped Wall Street estimates thanks to the final “Twilight” film with earnings of $37.8 million, or 28¢ a share, on revenues of $743.6 million and cash flow of $87.2 million for its third quarter ended Dec. 31.
Analysts have expressed confidence that Lionsgate will be able to mirror the success of launching more young-adult franchises and cited efforts to leverage its content into digital media initiatives; strengthening Lionsgate’s capital structure, including the recent completion of a new five-year, $800 million revolving credit facility.
The stock has reached more than a dozen record-high closes this year.