Lionsgate's 'Divergent' Divides Analysts

Divergent Woodley Kravitz Jumping from Train - H 2014
Summit Entertainment

Divergent Woodley Kravitz Jumping from Train - H 2014

Market watchers are polarized about the latest YA film adaptation as the focus turns to how the mini-studio replaces "The Hunger Games" revenues after the franchise concludes.

TORONTO -- Having just posted its second weekend box office, Lionsgate's Divergent release is dividing analysts.

Doug Creutz and Stephen Glagola at Cowen and Co. on Monday lowered their price target for the mini-studio as they predicted a drag on earnings after The Hunger Games franchise wraps in 2016.

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At the same time, after Summit Entertainment's YA film adaptation Divergent in its second weekend was off just 51 percent to $26.5 million in box office, Matthew Harrigan at Wunderlich Securities maintained his price target and buy rating for Lionsgate stock.

Cowen's Creutz and Glagola, reducing their own price target from $36 to $28, said they have modeled a price target at $34 if Lionsgate can replace Hunger Games revenues starting in fiscal 2016, and $22 if it fails to do so.

"Our new price target is in the middle of the range, as we view a partial replacement of Hunger Games earnings as the most likely outcome," they wrote.

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But Wunderlich's Harrigan came out with a report on Monday that remains bullish about Lionsgate and its ability to avoid an earnings cliff after The Hunger Games franchise concludes.

"We adhere to our $43 price target and regard buy-rated Lionsgate as the best play on improving digital film economics and YA franchise creation," Harrigan wrote.

Late last week, Alexia Quadrani, an analyst at J.P. Morgan, reiterated her overweight rating on Lionsgate shares, arguing a recent pullback in the mini-studio's stock after the release of Divergent was "unwarranted."

"With the recent demand for content and the limited number of pure-play suppliers of content, Lionsgate remains a very attractive investment, in our view," Quadrani wrote in a March 28 research note.