Should You Buy Lions Gate Stock Ahead of Earnings? - Analyst Blog

, the name behind such films as

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, is down about 19% this year and roughly flat over the last 365 days. The recent rough patch has come on the heels of an incredible run, with Lions Gate going from a market value of around $787 million in March 2011 to about $5 billion in September 2013. However, since September 10, 2013, Lions Gate has lost about $1.5 billion in market value.

With the studio showing recent signs of decline, why would Lions Gate be a buy? Here are three great reasons:

First, Lions Gate has some very high potential movie deals in the pipeline, including the recently announced deals on a live action Mighty Morphin Power Rangers, New York Times bestseller Hatching Twitter TV series, and the Hunger Games: Mockingjay Parts 1 and 2. Concerns that Lions Gate doesn't have any new high-grossing movies to replace Twilight's revenue appear overblown.

Second, Lions Gate has a history of beating analysts' estimates. In December 2012, Lions Gate beat analysts' estimates by 54%. The following quarter the company only beat analysts' estimated by 16%. Then LGF thoroughly crushed estimates in June and September 2013, coming in 233% and 214% above target. And in the most recent announcement, December 2013, Lions Gate “only” beat analysts' estimates by 16%.

Lions Gate looks to release their quarterly earnings numbers in the week of May 26. With a history of beating analysts' estimates and no sign of any negative surprise priced into the market value, there's a good chance Lions Gate will pop at the end of the month following the release:

Third, Lions Gate has performed somewhat weakly against its entertainment peers. Given that Lions Gate has world class creative talent and a seasoned executive team, if there's any reversion to the mean, Lions Gate is the perfect example.

With the PowerShares Dynamic Leisure & Entertainment ETF

up about 100% on a year over year basis compared to Lions Gate's flat return, it certainly appears that investors simply need a reason to push the stock up. The May 26 earnings announcement could be that trigger.

Overall, Lions Gate appears set for some strong returns in the coming months, being driven by strong projects in the pipeline, a proven history of beating analysts' estimates, as well as having a beaten-down stock ready for the rebound.

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