Earnings Preview: Lions Gate Films

Jul.31.14 | About: Lions Gate (LGF)

Summary

Analysts expect LGF to earn $0.16/share in terms of EPS when the company announces its FQ1 results during the week of August 4.

If LGF can demonstrate a steady increase in its adjusted net income, then it should have no problem exceeding earnings estimates during the second quarter.

Recent trend behavior could improve during the second half of the year if LGF can meet and/or exceed analysts' earnings expectations for the upcoming quarter.

When it comes to a specific company's earnings, I always find it necessary to determine what needs to occur in order for that company to meet and/or exceed analysts' expectations. With that said, I wanted to take a closer look and share my thoughts on what needs to happen in order for Lions Gate (NYSE:LGF) to deliver a fairly solid quarter when the company announces its results on August 4.

Company Overview

Headquartered in Santa Monica, California, Lions Gate Entertainment Corp., is engaged in motion picture production and distribution, television programming and syndication, home entertainment, family entertainment, digital distribution, new channel platforms, and international distribution and sales activities and also operates through two segments, Motion Pictures and Television Production.

Recent Trend Behavior

On Wednesday, shares of LGF, which currently possess a market cap of $4.44 billion, a forward P/E ratio of 18.68, and a PEG ratio of 1.78, settled at a price of $31.38/share. Based on a closing price of $31.38/share, shares of LGF are trading 3.49% above their 20-day simple moving average, 5.09% above their 50-day simple moving average, and 4.37% above their 200-day simple moving average.

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Although these numbers indicate both a short-term and a long-term uptrend for the stock, which generally translates into a buying mode for most near-term traders and many long-term investors, I strongly believe the company's trend behavior will continue to improve even after it announces its second quarter results during the week of August 4.

Upcoming Earnings Outlook

When it comes to the company's upcoming FQ1 earnings, there are a number of things potential investors should consider. For instance, analysts currently calling for LGF to earn $0.16/share in terms of EPS (which is $0.26/share lower than what the company had reported during FQ4 and $0.02/share lower than what the company had reported during the year-ago period) and $507.13 million in terms of revenue when its quarterly results are released during the week of August 4.

In order to meet and/or exceed its quarterly EPS estimates, I'd like to see a 2%-to-4% increase in the company's FQ1 adjusted EBITDA (as compared to FQ4's adjusted EBITDA of $92 million), a 2%-to-3% increase in the company's FQ1 adjusted Net Income (as compared to FQ4's adjusted Net Income of $63.5 million) and lastly, a 2%-to-3% increase in the company's FQ1 gross revenue (as compared to FQ4's gross revenue of $721.9 million).

Lions Gate and Alibaba Team Up To Launch Streaming Service

On Tuesday July 15, Lions Gate announced that it would be partnering with Alibaba (NYSE:BABA) to launch a new subscription-based streaming service in China. The service, which will launch in August, will be accessed through Alibaba's set-top boxes and allow users the ability to access LGF's portfolio of titles. With that said, I strongly believe the move benefits both companies. In the case of Lions Gate, the subscriber service will create additional revenue streams and in the case of Alibaba the move fits the company's strategy of moving beyond traditional e-commerce.

Conclusion

For those of you who may be considering a position in Lions Gate Films, I'd continue to keep an eye on the company's partnership with Alibaba over the next 12-18 months and see how much an impact this particular service will have on the long-term growth of both Lions Gate and Alibaba. If the company can demonstrate steady increases in its net income, its adjusted EBITDA, and its gross revenues when it reports earnings during the week of August 4 I see no reason why analysts' expectations can't be met or even slightly exceeded.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.