Lionsgate Stock Falls as Analysts Assess 'Allegiant' Damage

Murray Close/Lionsgate

After the Shailene Woodley-starrer opened to $29.1 million at the North American box office, down nearly half from previous releases in the YA franchise, investors ask what's next.

Lionsgate's stock fell Monday morning after the YA film adaptation The Divergent Series: Allegiant  disappointed at the weekend box office by not getting close to the numbers reached by earlier films in the franchise.

Lionsgate shares opened on the New York Stock Exchange down 97 cents, or 4 percent, at $21.68. As of 9:45 a.m. ET, they were down 2.3 percent. On Friday they closed at $22.62. Over the past year, the stock has traded as low as $16.21 and as high as $41.41.

Allegiant's underperformance follows no cheer for the studio at the box office for Gods of Egypt, The Last Witch Hunter and Mortdecai. That could spell trouble for Lionsgate and Summit with investors when it comes to YA film adaptations after the blockbuster success of the Twilight and The Hunger Games film franchises, with implications for 2017 and 2018 financial results.

"While we are generally reticent to change ratings around a single movie’s performance, the bull case on this name has been that there would be no earnings cliff post-Hunger Games," Stifel analyst Ben Mogil wrote in a report.

The studio's stock price has risen sharply in recent years on the strength of the Hunger Games franchise, which had Jennifer Lawrence playing a young rebel in the dystopian movie series. So analysts in turn have flagged a possible profit shortfall at Lionsgate after the end of the Hunger Games movies if the studio could not develop more film franchises.

"With Allegiant now faltering, the impact going forward is material and more importantly brings into question how deep the Young Adult market is, a market which has brought in numerous entrants amid a moviegoing environment which is increasingly very concentrated among fewer films," Mogil argued.

The Allegiant underperformance may also complicate any discussions for Lionsgate to merge with or acquire premium cable channel Starz, a move that could take the place of Hunger Games in goosing the studio's share price.

However, Matthew Harrigan, an analyst at Wunderlich Securities, in his own note remained bullish on Lionsgate, lauding the company's TV and other media properties and predicting Allegiant would break even and saying that the studio's stock price implies no value from new films.

"Given poor reviews and very unpredictable box office for YA (young adult) films, we admit to actually being slightly relieved, with the film likely to achieve cumulative U.S. box office approaching $70 million," Harrigan wrote.

Eric Wold, a B. Riley & Co. analyst, in his note cautioned a weak opening for Allegiant would put downward pressure on his estimates for near-term earnings.

"With Batman v Superman opening this coming weekend, taking over all Imax, and exit polls negative for the (Allegiant) film, we believe it is unlikely to gain any momentum in the coming weeks," he wrote. At the same time, Wold looked beyond the Divergent property to a possible earnings rebound for Lionsgate after fiscal year 2016. 

That's as TV production offsets disappointments at the theatrical box office and Lionsgate becomes a buyer or takeover target, he argued.  "Even with that backdrop, we remain optimistic on Lionsgate, given the projected opportunity to see earnings before interest, taxes, depreciation and amortization increase off the fiscal year 2016 trough (with a new guidance range likely to be provided on the upcoming conference call), the improving revenue/margin contributions from the TV production segment and the opportunity to leverage the low tax rate base in multiple ways (as a buyer or a target)," Wold wrote.