Are you still holding shares of Lions Gate Entertainment Corp. LGF and waiting for a miracle to take the stock higher in the near term? If yes, then you might lose more money as chances are very slim that the stock, which lost its value by more than 42% in the past six months, will take a U-turn going forward. So let’s recall what we learnt in our school days – “A stitch in time saves nine”, meaning that timely action may prevent a serious loss later on. Let’s delve deeper and try to find out what is taking this Zacks Rank #4 (Sell) company down the hill.
Lions Gate Entertainment reported dismal financial numbers for the second consecutive quarter. The company’s third-quarter fiscal 2016 earnings of 37 cents (including stock-based compensation expense) slumped 43.9% year over year and missed the Zacks Consensus Estimate of 48 cents by a wide margin.
On the revenue front too, Lions Gate witnessed a 10.8% year-over-year decline to $670.5 million, mainly due to a fall in revenues from both Motion Pictures and Television Production. The figure also lagged the Zacks Consensus Estimate of $780.6 million. Management stated that results in the third quarter were primarily impacted by weakness in theatrical film slate performance.
Let’s look at Lions Gate’s earnings estimate revisions in order to get a clear picture of what analysts are thinking about the company. In the past 60 days, the company’s earnings estimates for fiscal 2016 have declined by 40.4% to 56 cents. On the other hand, over the same time frame, its earnings estimates for the fourth quarter of fiscal 2016 have moved down to 28 cents from 43 cents.
Moreover, the escalating cost of motion picture production and marketing in recent years may jeopardize Lions Gate’s margins. Also, the continuation of this trend may leave no other option for the company than depending more on lower revenue generating avenues such as home video and television, which may not be adequate to offset the cost of production.
Consider Other Stocks
Why buy a company that is bogged down by dismal earnings and downward estimate revisions? If you want to own a stock in the same space, consider DreamWorks Animation SKG Inc. DWA, The Walt Disney Company DIS and World Wrestling Entertainment Inc. WWE. All the three stocks hold a Zacks Rank #2 (Buy).
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