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Lionsgate Shares Slide As Box Office Falls Short of Sky-High Expectations

Shares still more than double in value this year

Lionsgate shares slid over 10% in bearish trading Monday, despite the huge opening of “The Hunger Games: Catching Fire” over the weekend.

Catching Fire” took in $158 million domestically and $307.7 million worldwide, making it the 12th-largest worldwide debut ever. Though results were in line with the average forecast, they fell short of the high end of expectations and Lionsgate stock fell $3.53 to $30.23.

Even with the decline Monday, shares of Lionsgate have more than doubled in value this year. Ben Mogil, an analyst with Stifel Nicolas, said that the price decline was an over-reaction.

“We believe the stock weakness following ‘Hunger Games: Catching Fire’ to be overdone,” Mogil said. “While the domestic number will be revised downwards from $161 million to $158 million, we note that this is still above the $152 million  from the first film and likely flat on an attendance basis. More importantly, the first film opened during March/spring break, and this one opens a week ahead of Thanksgiving so we a expect strong second week box office as well.”

Mogil — who has a “buy” rating with a $37 price target —  also said international results are “very strong,” particularly in the U.K. where Lionsgate self-distributes. He reiterated his forecast of a $875 million global box office and very likely north of $900 million.

Greg Brown of Wunderlich Securities said the international gross of $146.6 million included results that were double those of the first “Hunger Games.”

“We still believe that international box office could reach parity with domestic, versus only 41% of global receipts coming from foreign markets for the initial film,” he added. “We think that $800 million in global box office is achievable.”

Doug Creutz of Cowen & Co. issued a slight increase in his earnings estimates based on the “Catching Fire” results, adding a penny to the fiscal 2014 figure to $1.20 and six cents to the fiscal 2015 number to $1.81.  Creutz said he was  “optimistic” that “Divergent” will become a franchise for Lionsgate, he cautioned that results won’t achieve the same level as “The Hunger Games” franchise.

“We continue to expect a much lower level of performance than for ‘Hunger Games’ with our domestic box office estimate at $130 million,” he said.

“Divergent,” starring Shailene Woodley, opens March 21.

David Bank of RBC Capital said the sell-off of Lionsgate shares reflected a pair of trends.

“I think we are in a bit of a ‘sell the winners’ media market,” he noted. “I think there is a bit of a ‘sell the news’ mentality in investing around a big movie opening. I really don’t think there is a lot of fundamental reasons for selling.  ‘Catching Fire’ opening was in-line with consensus and considering it’s a 2D movie with 2D ticket pricing, I think it was a pretty robust open both domestic and international.”

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