A scene from Mockingjay-Part 2, the final installment in Lions Gate's immensely profitable Hunger Games series of movies. Source: Lions Gate Entertainment.
Shares of Lions Gate Entertainment (LGF +0.00%) are up roughly 20% year to date. Will the rally continue, or are worse days ahead? A lot depends on how well the business performs. Here's a closer look at what analysts expect to see when the upstart studio reports fiscal first-quarter 2016 earnings next week:
| Fiscal Q1 Estimates | Revenue | YOY Growth | EPS | YOY Growth |
|---|---|---|---|---|
|
Low estimate | $404.5 million | (9.9%) | $0.02 | (93.3%) |
|
High estimate | $469 million | 4.4% | $0.11 | (63.3%) |
|
S&P CAPITAL IQ CONSENSUS |
$430.40 million |
(4.2%) |
$0.07 |
(76.7%) |
Source: S&P Capital IQ.
Most expect a beat, though last quarter's big miss may have some wondering. Still, bullishness is warranted, with Lions Gate beating estimates in three of the past four quarters leading up to next week's report:
| Earnings History | FQ1 2015 | FQ2 2015 | FQ3 2015 | FQ4 2015 |
|---|---|---|---|---|
|
Consensus | $0.18 |
$0.11 | $0.62 | $0.30 |
|
Actual | $0.30 | $0.15 | $0.65 | $0.14 |
|
DIFFERENCE |
$0.12 |
$0.04 |
$0.03 | ($0.16) |
Source: S&P Capital IQ.
Looking at the overall business, I'm watching for momentum in each of these four areas:
1. Continued gains in television. You wouldn't know it from all the media reports about its cinematic plans, but TV is a big business for Lions Gate. In fiscal 2015, television properties produced a record $579.5 million in revenue. Setting a similar or even faster pace in Q1 could prove catalytic for the stock.
2. Signs of long-term improvement in movies. The Hunger Games series has been transformative for Lions Gate. The last in the series, Mockingjay, Part 2, opens in November and should perform at least as well as the lead-in ($752.1 million worldwide on a $125 million production budget, Box Office Mojo reports). What happens after that? Look for an update on what to expect financially from the movies segment after Mockingjay exits the theaters and Lions Gate invests stored-up capital on new franchises in the making.
3. A rich backlog of movie and TV development projects. In Hollywood, a development pipeline is equivalent to R&D. More projects mean more opportunities to release a hit that results in long-term, high-margin syndication revenue. Look for CEO Jon Feltheimer to give an update on the most promising ideas right now, including a multi-picture deal based on Homer's The Odyssey to be developed by key figures in the Hunger Games franchise: director Francis Lawrence and producer Nina Jacobson.
4. An improved balance sheet. With Lions Gate actively seeking new projects, it's a good time for investors to take note of cash flow and the balance sheet. Healthy balances in both areas would make it easier to strike deals and grow the business. In Q4, cash flow from operations more than doubled to $259.6 million, S&P Capital IQ reports. The studio also had over $500 million in cash and investments at its disposal.
Lions Gate reports fiscal Q1 results Thursday, August 6, after the market closes.
