In a report published Friday, Macquarie analyst Amy Yong initiated coverage of Lions Gate Entertainment Corp. (USA) (NYSE: LGF) with an Outperform rating and a price target of $45.
“Everything changes except great content. As content mercenaries, management has an insatiable appetite for seeking out avenues of growth with a low risk, high return discipline,” analyst Amy Yong wrote. This financial disciple by the management had “translated into tremendous free cash flow potential.” Yong expects Lions Gate to generate a 3-year CAGR of revenue, EBITDA and FCF of 8 percent, 11 percent and 20 percent till FY18.
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The analyst projected the company’s EBITDA at $1.26bn, towards the high end of the management’s guidance. The Macquarie report stated that this projected was based on the following:
- No visible earnings cliff - Yong pointed out that Mockingjay 2, Allegiant and Now You See Me 2 were expected to outperform box-office expectations, while Power Rangers, The Odyssey and The Hunger Games were not included in the guidance.
- More windows, more platforms – “On-demand, SVOD, and emerging platforms are carving out a significant opportunity to grow its high-quality TV business,” the analyst said.
- Little things add up in a big way – Lions Gate’s library of content, location-based entertainment, own distribution in the UK and notable JVs that expand the company’s footprint into LatAm and Asia could be the “areas of incremental growth,” the report added.