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Factors Likely to Influence Lionsgate (LGF.A) Earnings in Q1

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Lions Gate Entertainment Corp. (LGF.A - Free Report) , producer and distributor of motion pictures for theatrical and straight-to-video release, is scheduled to report first-quarter fiscal 2018 results on Aug 8, after the closing bell.

Last quarter, the company delivered a negative earnings surprise of 3.5%. It has surpassed the Zacks Consensus Estimate in two of the trailing four quarters, with an average earnings beat of 25%. Let’s see how things are shaping up for this announcement.

What to Expect?

The question lingering in the investors’ minds now is whether Lions Gate Entertainment will be able to come up with a positive earnings surprise in the quarter to be reported. The current Zacks Consensus Estimate for the quarter under review is 27 cents, reflecting a year-over-year increase of over 47%. We note that the Zacks Consensus Estimate has improved by a penny over the past 30 days. Analysts polled by Zacks, expect revenues of roughly $1,000 million compared with the $554 million reported in the prior-year quarter.

The stock has outperformed the industry in the past three months. The company’s shares have increased 17%, compared with the industry’s gain of 2.8%.

Factors Influencing the Quarter

We expect Lions Gate to report sharp increase in both revenues and earnings on a year-over-year basis primarily owing to Starz acquisition. The company has been bolstered by the Starz buyout to emerge as one of the major players in the TV space and is also regaining lost ground in streaming network. Further, it had earlier stated that Starz had a robust fourth-quarter fiscal 2017, primarily due to strong ratings for its top shows, continued expansion of OTT services. At the end of fourth quarter, Starz had 24.2 million subscribers, up 250,000 year over year. The launch of programs like American Gods and White Princess will aid further subscriber growth in fiscal 2018.

Moreover, Lions Gate has invested in The Immortals, to capitalize on the increasing popularity of eSports. The company expects eSports market to grow over $1 billion by the next year. Further, the company’s Television Production segment is likely to report solid revenue growth primarily due to rise in platform and channel on which it distributes its content.

However, fewer movie releases in fiscal 2018 compared with the previous year may hurt the Motion Picture revenues. Further, the escalating cost of motion picture production and marketing in recent years may jeopardize Lions Gate’s margins. The continuation of this trend may leave no other option for the company than to depend more on lower revenue generating options such as home video and television, which may not suffice to negate the cost of production.

Lions Gate anticipates EBITDA growth in the range of low-to-mid teens over the next few years. However, the company’s EBITDA guidance for the fiscal 2018 did not impress investors as it is expected to be at the lower end of the aforementioned guidance.

What Does the Zacks Model Unveil?

Our proven model does not conclusively show that Lions Gate is likely to beat on earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Lions Gate has an Earnings ESP of -37.04% as the Most Accurate estimate is at 17 cents, while the Zacks Consensus Estimate is pegged higher at 27 cents. The company carries a Zacks Rank #3, which when combined with the negative Earnings ESP, makes surprise prediction difficult. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks with Favorable Combination

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Nexstar Media Group, Inc. (NXST - Free Report) has an Earnings ESP of +1.09% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Six Flags Entertainment Corporation (SIX - Free Report) has an Earnings ESP of + 0.54% and a Zacks Rank #3.

AMC Networks Inc. (AMCX - Free Report) has an Earnings ESP of +1.42% and a Zacks Rank #3.

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