Seeking Alpha
Research analyst, growth, value, IPOs
Profile| Send Message|
( followers)  

There have been numerous articles on Seeking Alpha and other investing websites recommending Lions Gate (NYSE:LGF) as a great trade right now due to the likely success of The Hunger Games, which opens in theaters on Friday. I am no exception to the rule as I just finished writing an article on other companies benefitting from The Hunger Games.

OK, since the article is about what Lions Gate has other than The Hunger Games, let's get this out of the way. The Hunger Games opened this weekend with $155 million, which beat all estimates that I found on Friday, including my own $75 million estimate that I predicted in a January article. Prior to The Hunger Games, Lions Gate's biggest movie in terms of box office revenue was Fahrenheit 9/11 with $119 million. The Hunger Games has already passed that and Breaking Dawn: Part 2 will later this year as well.

Television

Tonight marks the return of Mad Men on AMC (NASDAQ:AMCX). The series begins its fifth series after a year and a half hiatus. Thirteen episodes will air between tonight and June 10th, 2012. The series is produced by Lions Gate and they receive a payment per episode by AMC. Lions Gate also reached a deal in 2011 to show older episodes of Mad Men on Netflix (NASDAQ:NFLX) as part of their streaming library. The series has seen its season premiere ratings increase every season since it debuted in 2007.

Along with Mad Men, Lions Gate also owns the following television series:

· Weeds

· Boss

· Nurse Jackie

· Blue Mountain State

Lions Gate will also be producing Anger Management, a sitcom based on the hit movie of the same name. Anger Management stars Charlie Sheen, in his first television show since his departure from Two and a Half Men. The show will be aired on the FX channel, which is owned by News Corporation (NASDAQ:NWS). Premiering June 28th, 2012, the show will have a ten episode run and already has a pending 90 episode deal if the series is picked up after the ten episodes. Another interesting thing to note on the show is the series has already been picked up for syndication in other countries including: Canada, Germany, Switzerland, Austria, and parts of Latin America. Hate him or love him, Charlie Sheen brings viewers to his shows and this will once again be the case with Anger Management. The success of the show could have a huge impact on the television segment of Lions Gate.

Lions Gate will also have a new television series which is being written by one of my favorite authors, Dennis Lehane. Lehane is best known for writing Mystic River, Gone Baby Gone, and Shutter Island, which were all adapted into motion pictures. Along with the movies, Lehane has also worked as a writer on The Wire.

Movies

Lions Gate has released the following movies in 2012:

MovieBudgetOpening ($Mil)Domestic ($Mil)Foreign ($Mil)Total ($Mil)
One for the Money40.011.126.45.531.9
GoneN/A4.811.5.812.3
Man on a Ledge42.08.018.622.541.1
Good DeedsN/A15.633.7033.7

The rest of Lions Gate's 2012 Lineup looks like this:

April 13 The Cabin in the Woods

April 27 Safe

May 4 LOL

May 11 Girl in Progress

May 18 What to Expect When You're Expecting

July 27 The Marriage Counselor

July 27 Step Up 4

August 17 The Expendables 2

August 31 The Possession

September 7 The Cold Light of Day

September 21 Dredd

September 21 The Perks of Being a Wallflower

October 4 Sinister

October 19 The Big Wedding

October 26 Alex Cross

November 16 The Twilight Saga: Breaking Dawn Part 2

The company's lineup for 2013 is already shaping up nicely as well with the following:

January 4 The Texas Chainsaw Masscare 3D

January 18 The Last Stand

January 18 Now You See Me

February 1 Warm Bodies

February 22 I, Frankenstein

March 15 Ender's Game

March 29 We the Peeples

July 26 Dirty Dancing

August 2 Red 2

November 22 Catching Fire

Ender's Game is now a part o the Lions Gate portfolio through its acquisition of Summit Entertainment. The movie, which will be released March 15, 2013, is based on a series of bestselling books. The plot of the movie centers around a boy who is trained as part of a military program to prepare for an alien attack. The novel, written in 1985, has been well received by critics and actually was part of some military programs required readings. Harrison Ford and Asa Butterfield (the boy in Hugo) star in the movie, which has already begun filming. Currently on the Hollywood Stock Exchange, users predict the movie to earn $99 million over its first four weeks in theaters. I think that once a trailer is released and the publisher starts to market the book series again, this number will rise and this movie could turn into an excellent series for Lions Gate. Eleven novels and twelve short stories were made as part of the Ender's Series so Lions Gate could make multiple films if the first one is successful.

Lions Gate also owns the film rights the Chaos Walking Trilogy. The company will likely make three movies based on the books The Knife of Never Letting Go, The Ask and the Answer, and Monsters of Men. The books are young adult novels and center around Todd Hewitt. No filming dates or release dates have been released but it could be another winning franchise from the company.

Streaming

Lions Gate Films owns one of the biggest movie libraries in the media segment. Lions Gate streamed its previous seasons of Mad Men to Netflix, as mentioned above, which gave it a revenue stream from Netflix but also helped showcase its television show to millions of people that hadn't seen an episode. This in return will likely make the premiere of Season 5 of Mad Men its most watched tonight.

Lions Gate also reached a deal with Youku Inc. (NYSE:YOKU) to show 200 of its films on their website. Youku is the leader in internet television in China. The movies will be shown on an ad-supported basis or without ads for paying subscribers. Youku has reached similar deals with Disney, Paramount, Dreamworks, Warner Brothers, and 20th Century Fox. Movies mentioned by Lions Gate that will be made freely available were: Hotel Rwanda, Monster's Ball, and Mr. Magorium's Woner Emporium. The deal gives Lions Gate exposure into the Chinese market and further monetizes their existing library of films.

Analysis

In my last article on Lions Gate, I gave five reasons to buy shares for the short term. Let's check back at those reasons:

1. Analyst's Upgrades

I'm sure I am missing some but from what I found: Caris & Company upgraded shares from sell to below average (March 22), and Stifel Nicolaus upgraded shares from hold to buy (January 24). I could probably see a couple more upgrades coming due to the success of The Hunger Games and the value of its sequels.

2. Earnings Beat

The last quarterly earnings actually fell short of what analysts were expecting. Look for the next earnings report to beat and provide updated guidance for the rest of the fiscal year.

3. Raised Guidance

Same as #2 above, I think that the next reported earnings will also provide guidance for 2012 and perhaps 2013 that will be above current levels.

4. Release of Breaking Dawn on DVD

Over three million copies of Breaking Dawn were sold in their first weekend on the market. The bad news is the number falls short of the four million copies of New Moon sold. Breaking Dawn did outsell Eclipse though.

5. Double Weekends

Man on a Ledge and One for the Money were both beat by The Grey during their opening weekend. Both movies have fallen short of the estimates I used from the Hollywood Stock Exchange. This prediction kind of fell flat since the movies that were released against each other didn't do well enough at the box office.

Recommendation

I bought shares of Lions Gate Films a week ago Friday as a long term trade. I was pleasantly blessed with increases in the share's price on Monday, Tuesday, and Wednesday before Thursdays' seven percent drop and Friday's small decrease. The good news is I plan on holding Lions Gate shares for several years as the company proves it has more than The Hunger Games to offer.

Shares of Lions Gate hit an all time high of $15.28 on Wednesday before falling down to $14.50 on Friday. I think Wednesday was just the beginning and find it highly likely that Lions Gate will see another all time high over the next month. The company is clicking on all levels with The Hunger Games franchise and the newly acquired Twilight franchise. The 2012 and 2013 slates look very promising, with potential blockbuster franchises like Ender's Game and Chaos Walking Trilogy.

The television segment is doing extremely well with the premiere of Mad Men and recent success from Boss. The new Anger Management show could be one of the most watched shows on cable with the popularity of Charlie Sheen and also expand the company's presence in other countries.

The bottom line is that now is the time to buy Lions Gate shares if you believe in the long term success. This week will see a few wild swings due to the released box office numbers from The Hunger Games. My price target for 2012 is $20 and long term I see shares hitting $30 by the time the last Hunger Games movie is released in theaters. The company fended off Carl Icahn in his recent takeover attempts but bigger companies could be coming to take a look at Lions Gate Films as early as this week.

Source: Lions Gate Entertainment Has More To Offer Than 'The Hunger Games'