Lionsgate Stock Down Slightly After Final 'Hunger Games' Debut, Analysts Weigh In
One Wall Street observer suggests security concerns affected the end of the Katniss Everdeen saga, which opened to a franchise-low $101 million domestically, as deal chatter returns.
The stock of Lionsgate dropped slightly in early Monday trading after The Hunger Games: Mockingjay - Part 2 debuted with a North American box office of $101 million, below expectations and the weakest opening for the franchise.
Shares in the studio fell $1.24, or 3.5 percent, in early trading and were down 2.5 percent at $34.13 as of 10 a.m. on the New York Stock Exchange. Lionsgate analysts weighed in Monday, with Evercore analyst David Joyce citing short-term security concerns in the wake of the Paris attacks as grounds for the initial box office shortfall.
"We would not yet extrapolate this past weekend's light moviegoing attendance out to our full theatrical release estimates. We think a better retention ratio for the second weekend is possible — the Thanksgiving weekend in the U.S. — as there seems to be less theatrical competition even for the next month, up until Disney's Star Wars release," Joyce wrote in a note Monday.
Stifel Nicolaus analyst Ben Mogil reduced his own estimates on Lionsgate's three-year guidance, if only to the lower end, after opening-weekend box-office results fell short. "We believe that M&A expectations, with Starz able to enter into a tax inversion starting early next year, as somewhat offsetting the valuation pressure," Mogil said.
He was referring to persistent speculation that Lionsgate and Starz might merge after John Malone and two of his major assets, Liberty Global and Discovery Communications, bought into the studio. The end of the Katniss Everdeen saga sparked speculation elsewhere about Lionsgate possibly looking for an acquisition to avoid a profit shortfall.
"Although we continue to believe Lionsgate's diversification into the TV production segment and a relatively solid upcoming film slate should help offset those concerns, we believe a positive outcome of this film’s underperformance (and potential impact on future prequel/sequel planning) could be to boost management’s motivation to seek out transformative acquisitions to further drive diversification and EBITDA growth," B. Riley analyst Eric Wold wrote, also suggesting a possible Lionsgate-Starz deal.
Stock in Lionsgate faced a similar reaction after earlier franchise openings for Hunger Games: Catching Fire and Hunger Games: Mockingjay 1. Matthew Harrigan, an analyst at Wunderlich Securities, said Monday that the $247 million opening for the fourth Hunger Games installment was "not exactly dystopian," but argued new movies in the Lionsgate pipeline were key to feeding the bottom line going forward.
A Hunger Games prequel has been muted, and the studio is already licensing its film properties to new theme parks being built around the Hunger Games and Divergent film franchises near Macau and Atlanta, Ga. to generate new revenue. But Lionsgate is under pressure by investors to produce new blockbuster movie franchises beyond the Hunger Games phenomenon to keep drawing young audiences.
Wunderlich's Harrigan predicted releases in 2016 for Divergent and Now You See Me sequels "could plausibly each generate $100 million in profit," even as a question mark continues to hang over a third big release next year, the fantasy adventure Gods of Egypt.
"Lionsgate has only $10-15 million of production cost exposure with strong foreign presales and a 46 percent Aussie tax benefit. That said, careful hedging of downside is mild consolation if a new potential franchise does not coalesce," he wrote in his note to investors.
Lionsgate, with movie franchises such as Divergent and The Expendables alongside a TV series pipeline that includes Netflix's Orange Is the New Black and Nashville on ABC, already saw its stock fall in the run-up to the Hunger Games: Mockingjay 2 release. Over the past year, the stock has been trading between $27.51 and $41.41.
J.P. Morgan analyst Alexia Quadrani in an investor note Monday said the recent weakness in Lionsgate's share price was "overdone," and that a buying opportunity was at hand: "Lionsgate is immune from many of the challenges in the current media landscape including concerns around shifts out of television advertising and the fraying of the traditional cable bundle."