You will be redirected back to your article in seconds

Lionsgate looks to lead on young-adult franchises

Stock continues surge as final 'Twilight' to open this week

With the final “Twilight” movie opening this week, Lionsgate is primed to capitalize on its momentum with investors and take its place alongside Hollywood’s majors at long last.

Lionsgate shares soared 14% on Friday to close at $16.68 on the heels of a stellar quarterly earnings report that blew past analysts’ expectations mostly thanks to boffo homevid sales of “The Hunger Games.”

The stock has nearly doubled in value since January, when Lionsgate closed its acquisition of “Twilight” producer Summit Entertainment. The marriage of the “Hunger Games” and “Twilight” franchises, coupled with young adult-targeted prospects in the hopper and growing revenue from TV and digital markets, has Wall Streeters swooning over Lionsgate’s earnings potential in the coming years.

On Friday Alan Gould of Evercore raised his price target on the company’s shares from $18 to $20 and noted that “The Twilight Saga: Breaking Dawn — Part 2” is tracking well, with higher ticket pre-sales than for last year’s “Breaking Dawn — Part 1.”

Gould said he likes the stock for several reasons: the franchises, predictable earnings growth with lower P&A costs, the de-leveraging of the balance sheet from $1.1 billion this year to $230 million by March 2015 and the possibility of a small dividend.

“It is misperceived as simply an independent film company, yet it controls two of the dominant franchises in Hollywood,” Gould added.

The four “Twilight” films have generated more than $2.5 billion in worldwide box office for Summit, and the fifth is expected to eclipse the worldwide cume of the fourth, which topped $700 million.

In dissecting Lionsgate’s fiscal second quarter earnings, James Marsh of Piper Jaffray noted that “Hunger Games” alone generated revenue of $166 million — far above his $114 million estimate for the homevid release. “Hunger Games” generated nearly $700 million at the worldwide B.O.

“The cash flow pig from ‘Hunger Games’ is moving through the python, and we expect this to become a recurring theme with at least one more ‘Twilight’ and three more ‘Hunger Games’ films,” he wrote in a research note.

Beyond the B.O. gains, Lionsgate CEO Jon Feltheimer emphasized that the company’s revenue base has expanded during the past five years as its TV biz has grown. It has high hopes for its most recent entries, FX comedy “Anger Management,” toplined by Charlie Sheen, and the sudsy ABC drama “Nashville,” which Disney chief Bob Iger singled out as having growth potential for the network during the Mouse’s earnings call last week.

Lionsgate is also seeing growing returns from its library of film and TV titles as digital revenue augments sales of physical DVD and Blu-ray discs. Its Epix pay TV joint venture with Paramount and MGM has been a driver of digital licensing coin, first with Netflix and now with Amazon and others.

“Just five years ago, 70% of our library revenues were generated by packaged media,” Feltheimer noted. “This year, our library revenue should be up approximately 20%, with only 38% generated by packaged media as digital becomes an increasingly important and high-margin component.”

Feltheimer and Co. are also generating goodwill on Wall Street for delivering on past promises. Feltheimer issued a particularly bullish forecast during its May conference call with analysts, predicting that the combo with Summit was on track to generate $900 million in EBITDA over the next three years. Doug Cruetz of Cowen, who has an outperform rating on the stock, noted in his report Friday that his EBIDTA estimate for the quarter had been $33 million — less than a third of the reported $109.7 million.

“We believe (Lionsgate) shares have at least 20% upside relative to the next 12 months,” he wrote.

As “Twilight” fans begin camping out in anticipation of Monday’s premiere at the Nokia and Friday’s opening, investors are impressed by Lionsgate’s strategy for opening the next three “Hunger Games” pics in the pre-Thanksgiving slot in 2013, 2014 and 2015. Lionsgate recently signed Francis Lawrence, director of the second installment, “Catching Fire,” to helm the final two movies, “Mockingjay Part 1” and “Mockingjay Part 2.”

“We’re obviously impressed with what he’s doing with the franchise,” Feltheimer said.

Lionsgate also has “Ender’s Game” — another potential young-adult franchise based on a fantasy novel, with Asa Butterfield (“Hugo”) starring — opening on Nov. 1, 2013, and it is developing a number of other potential multi-installment properties.

On the Friday call, Feltheimer singled out “Divergent,” based on the fantasy-book series by Veronica Roth, noting that Lionsgate had already signed Shailene Woodley to star, Neil Burger (“Limitless”) to direct and set it for release on March 21, 2014 — the same slot it used this year for “The Hunger Games.” Summit closed a deal in 2011 to acquire film rights to the series, with Red Wagon toppers Douglas Wick and Lucy Fisher producing along with Pouya Shahbazian.

“To remind everyone, the books have already sold more than 2 million copies and are tracking ahead of both the ‘Twilight’ and ‘Hunger Games’ books at a comparable stage in their growth trajectory,” Feltheimer said.

Patrick Wachsberger, co-chairman of the motion picture group and a longtime expert in foreign sales at Summit, told analysts that Lionsgate had done “extremely well” with “Divergent” during AFM, with international territory sales already covering 80% of the movie’s budget.

Lionsgate also recently closed a five-year, $800 million revolving credit facility and paid off the balance of its $500 million term loan to buy Summit two years ahead of schedule, which will save it millions in interest payments.

“With an $800 million facility, a record $1.2 billion backlog that represents a sizeable portion of our future stream, a 15,000 title library, a significant box office share and a successful and diversified TV slate, we have now achieved critical mass and leveled the competitive playing field,” Feltheimer said.

More Film

  • Portrait of a Young Woman on

    Cannes Film Review: 'Portrait of a Lady on Fire'

    The title of Céline Sciamma’s “Portrait of a Lady on Fire” implies that her subversively seductive film will focus on the subject of its eponymous painting — an 18th-century woman who refuses to pose, in defiance of the arranged marriage into which she’s being forced — when it’s just as much a portrait of the [...]

  • Colin Firth

    Cannes: Colin Firth WWII Drama 'Operation Mincemeat' Sells Out Internationally (EXCLUSIVE)

    “Operation Mincemeat,” a buzzy World War II drama that stars Colin Firth, has sold out international territories at this year’s Cannes Film Festival. Warner Bros. has picked up several key markets, as has Central and Eastern European distributor Prorom. The film reunites Firth with John Madden, his “Shakespeare in Love” director. FilmNation Entertainment and Cross [...]

  • Meikincine Scoops Three Titles at Cannes

    Meikincine Scoops Three More Titles at Cannes Film Market (EXCLUSIVE)

    Lucia and Julia Meik’s boutique sales company Meikincine has announced three acquisitions out of this year’s Cannes Film Market: Gaspar Scheuer’s “Delfin”- which world premiered in the Cannes Écrans Juniors Competition; Marcelo Paez Cubells’ “Which”– part of this year’s Blood Window Showcase for films in progress; Sebastián Mega Díaz’s romantic comedy “The Big Love Picture.” [...]

  • Editorial use only. No book cover

    Documentarian Patricio Guzman On Chilean Soul And Mountains

    CANNES — Renowned Chilean documentary filmmaker  Patricio Guzmán (“The Battle of Chile,” “The Pearl Button”) has returned to the country to shoot “The Cordillera of Dreams,” 46 years after he was exiled under Augusto Pinochet’s regime of terror. The feature has received a special screening at the Cannes Film Festival. Sold by Paris’ Pyramide International, [...]

  • Picture Tree Intl. Inks First Deals

    Cannes: Picture Tree Intl. Inks First Deals on 'Traumfabrik' (EXCLUSIVE)

    Picture Tree Intl. has clinched first deals on romantic drama “Traumfabrik,” which is produced by Tom Zickler, the former producing partner of German star Till Schweiger. The film has been picked up by Leomus in China; Flins & Piniculas in Spain; LEV Films/Shani Film in Israel; Taiwan in Moviecloud; Media Squad in Czech Rep., Hungary [...]

More From Our Brands

Access exclusive content