FBR Capital Lowers Numbers on Lions Gate (LGF); Sees Possible Starz (STRZA) Deal in 2016

FBR Capital analyst, Barton Crockett, is reducing estimates on Lions Gate (NYSE: LGF) to $1.91 from $2.44 as Mockingjay 2 trends below expectations. The analyst had been anticipating a step up.but disappointing first week ticket sales confirms that it is likely to cause earnings miss. This flows through to a $5 reduction in the price target to $38.

The movie had originally been expected to bring in $380 million in box office receipts leading to $315 million in profit. However with the early disappointment box office receipts are more likely to be $300 million with profit of $240 million.

What next? After the Hunger Games has run its course, the question remains, what will backfill the missing profit? Pilgrim may account for part of it. LGF is taking a controlling stake in Pilgrim for close to $200 million, which the analyst estimates will drive, more than $30 million of EBITDA. Additionally, Discovery and Liberty Global's recent equity investments and board seats carry TV production relationship opportunities that could prove meaningful.

M&A could be the other way to fill the Hunger Games gulf. LGF's advantaged tax rate and new board members (John Malone, David Zaslav, and Michael Fries) put it in a position to become a content consolidator. The most likely target appears to be Starz (NASDAQ: STRZA), because of the Malone relationship and LGF's voting/equity interest. Our math suggests Starz could pay a 20% premium and enjoy 30% free cash flow per share accretion from a combination. We believe tax constraints could make an offer more likely early next year.

For an analyst ratings summary and ratings history on Lions Gate click here. For more ratings news on Lions Gate click here.

Shares of Lions Gate closed at $34.80 yesterday.

You May Also Be Interested In

• Growth isn't weak enough to truly undercut inflation pressures - BMO
• Westamerica Bancorp (WABC) PT Lowered to $50 at Piper Sandler
• Comerica (CMA) PT Raised to $54 at Piper Sandler