Jim Cramer told Mad Money viewers on May 31 that anyone buying Lions Gate Entertainment Corp. (USA) (NYSE:LGF) now was “late to the party.” While the huge moves have been made, so far this year, the stock has almost doubled from $16 to $30, he also said he couldn’t see it pulling back soon. Which is it, Mr. Cramer, buy or sell?
Break out the bubbly
Cramer’s right that the huge earnings surprises that drove up the stock and squeezed the shorts aren’t in the picture. The short interest has decreased to 12% from February’s 14.70%. It’s also true the stock rose over 6% after a stellar earnings report last week.
The jumbo shrimp may be all gone, but analysts still expect another serving of bubbly with 22.93% EPS growth over the next five years. They are bullish with four Strong Buys, seven Buys, and one Hold.
The PEG ratio for Lions Gate Entertainment Corp. (USA) (NYSE:LGF) is at 0.90, signifying that it is slightly undervalued. The forward P/E is 16.94. Its trailing P/E is half that of Sony Corporation (ADR) (NYSE:SNE)‘s 37.44 at 17.92 and is historically low for Lions Gate Entertainment Corp. (USA) (NYSE:LGF). Before reporting in February, its trailing P/E was 388.10 and in March it was at 78.
“Catching Fire”, the second installment of the teen dystopia Hunger Games trilogy comes out November 22. The PR machine is full steam ahead so is now the time to buy in? The movie has a dedicated fashion blog site as well as other participatory blogs and fan sites.The fashion blog is easily as slick as any designer website, i.e. Gucci or Prada.
Interestingly, this time around major corporations like The Procter & Gamble Company (NYSE:PG) are hoping people will buy into the hype as it is releasing a Cover Girl cosmetics line based on Catching Fire. This can only be good news for Lions Gate Entertainment Corp. (USA) (NYSE:LGF)… less money they have to spend on PR.
Lions Gate Entertainment Corp. (USA) (NYSE:LGF) will inevitably draw headlines in the months ahead like, “This stock is really Catching Fire”, har de har har, but there’s going to be truth in that. Just last weekend, their film “Now You See Me”, a small ensemble film about magicians performing big time heists, outperformed what was supposed to be a Will Smith blockbuster for Sony Corporation (ADR) (NYSE:SNE), “After Earth.” Now You See Me brought in $1.1 million more than After Earth in their opening weekends. Who said people don’t like magic acts?
With $28.1 million from the opening weekend and $55 million in foreign rights, Lions Gate has almost recouped its production costs of $70 million. Sony spent $130 million on After Earth. Not much of a party over at Sony right now.
Analysts are giving Sony a price target of $25.62 for more than 25% upside, and it does have a 1.50% yield. But the stock swooned over 5% after the disappointing box office numbers for After Earth.
In other good news, Lions Gate CEO Jon Feltheimer has signed a long-term agreement to stay on. He has been critical to helping Lions Gate achieve over $1 billion in revenue this last year and reporting its first ever annual profit at the earnings release last week.
Another bullet point for Lions Gate is that activist investor Carl Icahn moved on last year leaving millions on the table as Hunger Games went on to become a teen cult favorite and the stock quadrupled. Mark Cuban also left the party too early. Meanwhile, Sony is dealing with activist investor Dan Loeb who wants to break up the company.
Late to the party. Really?
That said, although in January Forbes wrote that Catching Fire was the most anticipated film of 2013, its foreign sales wouldn’t be anything to write home about. That honor would go to Iron Man 3.
It doesn’t seem to matter much as Lions Gate refuses to rest on its Panem laurels. In between its Twilight and Hunger Games releases, its horror franchises (Saw, Warm Bodies, Sinister, The Possession) shoring up profits. The TV division owns Weeds, Mad Men, Nurse Jackie, Anger Management, and Tyler Perry’s opus of work. It is still building on its youth franchise with Divergent, another teen dystopian trilogy, among many more book-related young adult movies to come. The Tyler Perry franchise also extends to film.
The company also owns an extensive (over 15,000 titles) video library and is beginning to develop its own music studio. That video library helped the company beat expectations when it reported last week, fueled by DVD sales of Twilight, Hunger Games, and fitness videos.
Lions Gate isn’t considered a value name like competitor Comcast Corporation (NASDAQ:CMCSA), with a yield of 1.90% and a 17 trailing P/E. Comcast Corporation (NASDAQ:CMCSA)’s cable empire is able to absorb any Universal Studios entertainment misses although there haven’t been many this year with “Identity Thief” doing well and “Fast and Furious 6” (has it been 6 already?!) paying for itself after two weekends, still number one at the box office. The film has brought in over $171 million so far with a budget of $160 million.
If Lions Gate had a yield, it would compare very favorably to Comcast. Considering Comcast has a market cap of $106 billion and Sony’s is $19.6 billion, little Lions Gate at $3.98 billion is growing just fine.
In all the noise over Netflix, Inc. (NASDAQ:NFLX) and original content for streaming with Amazon.com, Inc. (NASDAQ:AMZN) and Yahoo! Inc. (NASDAQ:YHOO) also getting in the game, it has been forgotten that Lions Gate is providing some of that new content for streaming for Amazon.com, Inc. (NASDAQ:AMZN), Hulu, and Netflix with “Orange is the New Black” for Netflix, Inc. (NASDAQ:NFLX) as a notable example.
Feasting on Panem
Panem, the setting for Hunger Games based on the Latin for bread, has a third installment, Mockingjay, coming out in 2014. There are still more champagne corks to be popped at Lions Gate with original content for Netflix, Amazon, and Hulu plus the video library and TV franchises. And Twilight, more horror films, and the TV franchises will keep the party going. Maybe it’s even time to break out the caviar if the new dystopia and young adult sagas catch fire, too.
Meanwhile, at Sony’s entertainment division, the dollar store sodas and chips are going flat and getting stale. At Comcast, the party may be more sedate than the giddy Lions Gate gala, but a party nonetheless. Welcome to the party, Mr. Cramer!
AnnaLisa Kraft has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article Too Late for This Blockbuster Party. Really?! originally appeared on Fool.com and is written by AnnaLisa Kraft.
AnnaLisa is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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