Lions Gate Entertainment Corp. (LGF) reported earnings for the 3rd quarter on Monday February 11th of 27 cents per share and what would have been 37 cents per share had it not been for the early retirement of a Summit term loan in the quarter. These results easily topped estimates which averaged 17 cents per share for the quarter. Revenue for the quarter was $743.6 million, $20 million ahead of estimates. Revenue increased more than 130% year-over-year driven by the November launch of "The Twilight Saga: Breaking Dawn Part 2", and it is important to note the home entertainment release is scheduled for March 2nd. Also home entertainment revenue increased 43% compared to the same period a year ago driven by a strong mix of titles. This is an important core business for Lions Gate with the company being a leader in box office-to-DVD revenue conversion rates and handling a library of over 15,000 titles.
Lions Gate has seen some success with the release of "Warm Bodies" at the end of January, the film has grossed over $36 million at the box office so far, including over $20 million in the opening weekend. The company also has "The Big Wedding" coming out the end of April, "Ender's Game" in early November and the second installment of "The Hunger Games" coming out the end of November. This should produce a strong 2013 for the company.
Even with the recent success of Lions Gate the company's valuation appears very reasonable. The company's forward P/E is 14 and its PEG ratio is only .89. When you look at Lions Gate compared to some of its peers you can see its P/E, PEG, and EV/Revenue ratios are the lowest in the group. Furthermore the company believes that strong free cash flow will allow it to deleverage and management is committed to optimizing the capital structure.
Looking at the chart of Lions Gate you can see the tremendous success the company has had, and it continues with the stock up over 20% already this year. With that said the uptrend appears to be strongly intact and after consolidating some at the end of last year the stock is on the run again. I do not see any reason not to get long this stock near these levels however with the move up on earnings I would consider waiting for a little pull back possibly to $19 per share. At that price Lions Gate would be trading at about 19 times estimated fiscal year 2013 and only 13.5 times estimated fiscal year 2014 earnings.
Data sourced from: Company filings, and Yahoo!Finance. Chart from: Freestockcharts.com