Feeling oh so Blu

Lionsgate roars in format war

Lionsgate Entertainment will benefit greatly from Blu-ray's victory in the DVD format war, so shareholders will naturally be rewarded.

SMH Capital analyst David Miller said this week that Lionsgate clears $15 per Blu-ray unit in clear margin for library titles and a whopping $21 for new titles like "War."

And, the kicker is, he estimates Lionsgate sold an additional 1.3 million units of Blu-ray library product relative to his projections just a few weeks ago as the demise of HD DVD has sparked sales for Blu-ray.

As a result, Miller boosted his fiscal fourth-quarter revenue projection from $400.1 million to $419.1 million and his earnings-per-share estimate from 44 cents to 46 cents.

Besides "War," Miller says that Lionsgate has seen improved Blu-ray sales of "Total Recall, "Terminator," the "Saw" series and the "Rambo" box set.

As per usual, Miller noted in his most recent note that, with 5,600 titles, Lionsgate has the "unappreciated distinction of having the largest film library" compared with all major studios.

Miller has a price target of $14.20 on Lionsgate shares, which closed Thursday at $10.16.

Miller's bullishness is tempered only slightly by Lionsgate's need to get "back on track on its episode commitment to various networks after the WGA strike."

As such, the company's cash-flow estimate was adjusted downward "to account for a burst of spending in TV over the past three weeks."

Miller now assumes fiscal fourth-quarter free cash flow of $179.5 million, down from his previous estimate of $188.8 million.

Miller Tabak analyst David Joyce is slightly less bullish on Lionsgate but nevertheless recommends buying shares. He set an $11 near-term target on the stock and a $13 longer-term target.

Joyce is enthusiastic about Lionsgate's recently announced deal to distribute HIT Entertainment's popular family-oriented, non-theatrical DVDs.

After that deal was announced, Joyce upped his fiscal-year 2009 revenue estimate by $10.5 million to $1.345 billion.

Lionsgate "is an increasingly strong producer and distributor of content," Joyce said, and "is happy to increase its distribution activity, even off of other entertainment companies' product, as it has positive margin, market share and negotiating power benefits."