Lions Gate Entertainment Corp. LGF, producer and distributor of motion pictures for theatrical and straight-to-video releases, is expected to report third-quarter fiscal 2016 results after the closing bell on Feb 4. In the previous quarter, the company reported a massive negative surprise of 966.7%. Notable, the company surpassed the Zacks Consensus Estimate in two of the last four quarters, with an average miss of 206.8%. Let’s see how things are shaping up for this announcement.
Factors Influencing the Quarter
The company in the recent past made some positive moves, which include expanding its Television segment and online presence. Lions Gate Entertainment has been trying to diversify its product portfolio through various agreements. The company's diversification strategy include entering into the game arena and opening of theme parks Although the company’s performance in the last quarter was disappointing, its attempt to diversify its business is a positive.
However, the escalating cost of motion picture production and marketing in recent years may hurt Lions Gate Entertainment’s margins. The continuation of this trend may leave no other option for the company than to depend on other revenue generating options such as home video and television, which may not manage to recover the cost of production.
In second-quarter fiscal 2016, the company’s earnings and revenues fell below the Zacks Consensus Estimate. Lions Gate’s second-quarter 2016 performance was primarily affected by timing of episodic television deliveries as well as the postponed release of Sicario in October. Dismal performance by American Ultra and the write-down of $7.2 million on The Last Witch Hunter also hampered the company’s quarterly results.
Earnings Whispers
Our proven model does not conclusively show that Lions Gate Entertainment is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below:
Zacks ESP: The ESP for Lions Gate Entertainment is -28.81%. This is because the Most Accurate estimate stands at 42 cents per share while the Zacks Consensus Estimate is higher at 59 cents.
Zacks Rank: Lions Gate Entertainment carries a Zacks Rank #3 (Hold) which increases the predictive power of ESP, however, the company’s negative ESP makes surprise prediction difficult.
We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks That Warrant a Look
Here are some companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat:
Time Warner Inc. TWX has an Earnings ESP of +2.00% and a Zacks Rank #2 (Buy).
The Walt Disney Company DIS has an Earnings ESP of +1.38% and a Zacks Rank #3.
Scripps Networks Interactive, Inc. SNI has an Earnings ESP of +1.98% and a Zacks Rank #3.
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