Will Lions Gate Score with 'Divergent'? - Analyst Blog

With a collection of nearly $56 million (as per studio estimates), Lions Gate Entertainment Corp's LGF highly anticipated action flick Divergent emerged strongly at the box office in its opening weekend.

The only other significant release was The Walt Disney Company's DIS The Muppets Most Wanted – a sequel to the 2011 blockbuster Muppets that raked in a disappointing $16.5 million compared with roughly $29.2 million that last Muppets earned in its opening weekend.

Last week, before the release, Divergent garnered weak reviews from critics, leading to downward revisions of the box office collections estimate. Consequently, Lions Gate witnessed its market cap erode nearly 9% in a single week.

However, fans gave thumbs up to the movie, much to the relief of the media house. Made at a budget of $85 million, trade analysts observe that next week collections are likely to cross the $100 million mark, marking the media house's entry into profits.

With Divergent, Lions Gate is looking at a new money making franchise, on the lines of the hugely successful Twilight Saga and The Hunger Games. These young adult fantasy adaptations propelled Lions Gate to soaring heights. However, it must be mentioned that the collections from Divergent are way below the record opening weekend collections of Twilight (2008) and The Hunger Games (2012).

Notably, Divergent fared much better compared to movies in the same genre like Beautiful Creatures, The Host, The Mortal Instruments: City of Bones and Vampire Academy, all of which were box office duds.

We believe that Divergent was unlikely to reach phenomenal success at the box office, primarily due to its clichéd theme and weak reviews. However, with a good opening, Lions Gate is now possibly looking at a profitable franchise, though not as big as Twilight or Hunger Games. Therefore, in any case, it remains a clear win.

Divergent is based on Veronica Roth's book by the same name and is directed by Neil Burger. It is the first installment of the trilogy starring Shailene Woodley in the lead. The futuristic book is set in dystopian Chicago and depicts young Tris Prior's (Woodley) coming of age. Lions Gate is likely to commence the production of the second installment Insurgent in May 2014.

Currently, Lions Gate carries a Zacks Rank #3 (Hold). Other stocks worth considering in the media/publishing sector include Digital Cinema Destinations Corp. DCIN, A. H. Belo Corporation AHC and Disney. All of these have a Zacks Rank #2 (Buy).