Analysts Weigh In on Lionsgate as Stock Slides, Guidance Lowered

The Hunger Games Mockingjay Part 1 Still 2 - H 2014
Courtesy of Lionsgate

The Hunger Games Mockingjay Part 1 Still 2 - H 2014

Shares tumbled after the 'Hunger Games' studio unveiled chairman Mark Rachesky's stock sale and new three-year earnings expectations revised downwards.

Lionsgate shares slid nearly 7 percent to $31.45 at the market close on Wednesday after news that chairman Mark Rachesky is unloading 10 million shares at $32.00 each, or around 22 percent of his holding in the studio.

But also fueling the market downdraft was Lionsgate, in an SEC filing revising previous three-year earnings expectations, announcing it was "tracking within the lower range of our previously stated adjusted EBITDA guidance of between $1.2 and $1.3 billion over the three fiscal years ending March 31, 2017."

That lowered profit forecast had analysts weighing in Wednesday on possible hidden downsides for the studio at the box office. Stifel analyst Ben Mogil in an investors' note suggested, "We suspect lower overall profitability for the Insurgent franchise as the likely driver towards the lower end of previous guidance as well as modestly lower expectations for the final installment of the Hunger Games franchise."

Piper Jaffray analyst James Marsh, in his own note, said the lowered guidance was "not surprising after modest underperformance of Mockingjay 1 and Insurgent," and that any additional weakness in Lionsgate shares represented a buying opportunity.

And analyst Brian Neeley of FBR Capital Markets said Rachesky's MHR funds selling the 10 million shares to outside investors, and not to a strategic investor like China's Alibaba and Dalian Wanda after they expressed earlier interest, or Liberty's John Malone, did not preclude Lionsgate from eventually landing a new strategic partner.

"We still believe Lionsgate shares could, over time, end up being accumulated by Malone or other strategic investors," Neeley said.