Why Lions Gate Will Benefit From An Increasing Appetite Of Original Content

Bernstein’s Todd Juenger maintained an Outperform rating for Lions Gate Entertainment Corp. (USA) LGF, with a price target of $34. He upgraded the company to Best of Bernstein Pick in U.S. Media.

Independent studios in general, and Lions Gate in particular, are expected to benefit from increased demand for original content, analyst Todd Juenger said. He added that the market seemed to have lost confidence in the Film segment.

Film reported EBITDA for FY16 has been forecasted at $150mm, with a 9 percent margin, as compared to the average of $400 for the last four years, with a 19 percent margin. “We believe FY16 is an outlier caused by fewer films, expensive slate, & 3 underperforming tentpoles,” Juenger wrote.

The Film EBITDA estimate for FY17, FY18 and FY19 are at $325, $450 and $400, respectively. This reflects a return to normalized hit-rate and modest tentpole contributions.

“LGF traded at ~15.5x before the FQ3 meltdown, now at 13x,” Juenger commented, while adding that the price target reflects an upside of about 50 percent.