Lionsgate (LGF, Financial) has carved out a niche with quirky movies and TV series. Its product is unlike anything else that you will see on Netflix (NFLX, Financial). Buying the stock is a challenge as predicting what the next blockbuster will be is next to impossible.
The stock got crushed a few weeks ago with the abysmal performance of "Hunger Games: Mockinjay II" and "Gods of Egypt." In 2014, Lionsgate had another bust in "Exodus: Gods and Kings." Maybe Lionsgate ought to get off the religion business and leave that to the clergy. Barrons had a good article on the company when the stock was $19.87.
Standard & Poor's expects fiscal year 2017 revenues to increase by 17% due to a new season of "Orange Is the New Black" and an increase in box office and home video. Earnings per share guidance is $1.23 for fiscal year 2017 versus $1 for fiscal year 2016. This is due to an EBITDA contraction caused by film amortization and advertising.
Well-known titles include: "Hunger Games," "Saw"Â and "Tyler Perry." Television series include: "Mad Men," "Nurse Jackie"Â and "Anger Management." There are also partial holdings and joint ventures in TV Guide, Epix and several other studios.
Fiscal year 2013 was a blowout year. Sales were $2.71 billion, EBITDA $329.7 million, earnings per share $1.73 and free cash flow $280.5 million. Why? Box office hits such as: "Warm Bodies," "Tyler Perry," "Now You See Me"Â and "Let Me Explain." Revenue in fiscal year 2013 was $493 million from the film library. The library has 13,000 titles.
At the end of 2015, the company showed $88.3 million in cash, $944 million in accounts receivable and $1.56 billion in movies in production. The liability side showed $625 million in debt, $327 million in accounts payable, $550 due in residuals (money due to actors from films and TV on video, etc.), $896 million in film obligations and $99.5 million in convertible bonds. Not a bad mix.
The company has 150 million shares outstanding and trades at a market cap of $3.53 billion. We will use S&P's guidance of $1 earnings per share for 2016. That puts the price to earnings ratio at 23.55. Free cash flow for fiscal year 2015 was $79.5 million, fiscal year 2014 $243.7 million and fiscal year 2013 $270.72 million.
At a market cap of $3.53 billion, the best price to free cash flow over the past few years would be 7.7%. It seems that the stock is always pretty expensive. Lionsgate needs a blowout year like fiscal year 2013 just to be reasonably priced. I like free cash flow because there are so many expenses and write-offs in film production.
You need to read this analysis of Lionsgate. This fellow contends that John Malone will merge Starz (STRZA, Financial) with Lionsgate. He points to Malone's awesome track record and how the two companies will increase shareholder value. Malone owns 3.43% of Lionsgate stock. Barbarians at the gate of Lionsgate.
Content is king. Lionsgate seems good at making TV shows and movies that end up on Netflix and other streaming video outlets. Making movies is not easy. Here is an article that proffers the idea that Amazon (AMZN, Financial) might buy Lionsgate. Not a bad idea. I like the stock. I'm not going to buy it at this time. Earnings and revenues are impossible to predict as the movie business is unpredictable. I've watched movies that my father has been in. I told him not to do "Donnie Darko," and I was dead wrong. I thought "Dreamer" was going to be a big hit, and it was not. When we first saw "Anchorman," I thought it would be a flop. It was re-edited, and it was a big hit. I would buy Liongsgate, but the stock would have to get a lot cheaper.
