What happened
On Wednesday, few investors were clapping for the performance of Lions Gate Entertainment (LGF-A -1.95%) (LGF-B -1.90%) stocks. The TV and film company saw the prices of both its listed shares tumble by around 15% on the day, after a prominent bank aggressively downgraded its recommendation on them.
So what
JPMorgan Chase's Philip Cusick downshifted his recommendation on Lions Gate's stocks -- not one, but two pegs. From his previous estimation of overweight (i.e., buy), he now feels the pair rate an underweight (sell). Consequently, he has reduced his price target by 30% to $7 per share (formerly $10).
Currently in the midst of hiving off its Starz TV channel, Lions Gate isn't attractively positioned for the future, the analyst believes. He's particularly concerned with the current state of its finances -- its borrowings have increased considerably of late. As for the split, he doesn't feel that Starz is a compelling stand-alone asset.
Now what
Cusick's downbeat take on Lions Gate's future mirrors that of other analysts tracking the entertainment-company's stocks. According to data compiled by Yahoo! Finance, the average analyst estimate for full-year 2022 anticipates only a modest rise in revenue (to $3.65 billion) and a significant deepening net loss ($8.75 per share, versus the preceding $0.84).
The entertainment business is fickle and challenging at the best of times, and this is compounded by current conditions. Like numerous other companies in its field, Lions Gate is eager to succeed in the streaming business with Starz. However, that field is already very crowded and customer appetites for additional offerings may be quite limited.
