Wolfe Research lowers its rating for Lions Gate, citing more spending and slower growth


Lions Gate Entertainment (NYSE:LGFA)

Shares of Lions Gate Entertainment (NYSE:LGF.A) fell on Wednesday after Wolfe Research, an investment firm, downgraded the media company, citing concerns about rising spending and sluggish streaming growth.

Considering that Lions Gate Entertainment (LGF.A) has underperformed the S&P 500 by 18% year to date, analyst Peter Supino cut his rating on the company’s shares from outperform to peer perform, with a fair value range between $6 and $15.

Supino stated in a note to clients that “the stock has been under pressure due to increased investment activity, notably at Starz, along with industry-wide worries linked to slower streaming growth.”

Supino also mentioned that Starz operating income before depreciation and amortization is “temporarily low,” pointing to direct-to-consumer initiatives, especially in overseas markets, which have increased the company’s EV/EBTIDA multiple above its historical average. In premarket trading, shares of Lions Gate Entertainment (LGF.A) dropped 1% to $9.55.

Supino pointed out that, “primarily attributable to a high growth prognosis of the company’s production assets,” the EV/EBITDA multiple will return to a more typical range once Starz’s operating income begins to stabilize.

Lions Gate Entertainment (LGF.A) and NBCUniversal of Comcast (CMCSA) agreed to an agreement last month to move the John Wick prequel series, The Continental to Peacock rather than Starz.

Lions Gate Entertainment has mostly favorable analyst sentiment (LGF.A). Wall Street analysts grade it a BUY, while Seeking Alpha authors gave it an average rating of BUY. Seeking Alpha’s quant algorithm, which routinely outperforms the market, rates LGF.An as a HOLD.

Earnings report and developments

The August 4 conference call and the most current financial report. Beyond the buyout-centered thesis, the primary bullet points of the Lions Gate thesis are iterated once more as follows:

  • Potential Starz subscribers
  • A hit movie schedule is upcoming
  • a successful television schedule
  • The library’s high-margin cash flow provides stability to the portfolio.

Adjusted earnings per share came out to a loss of $0.23 on a diluted basis, compared to $0.18 in net income per diluted share the previous year. This was better than expected, although revenue of $894 million was $11 million short of projections. The cash used for operating purposes was $2,000,000. Adjusted free cash, which includes production loans and tax credits but excludes a sizable inflow from interest rates, came to more than $60,000,000 in a swap.

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