Shares of Lions Gate Entertainment Corp. (LGF.A - Free Report) are riding high on encouraging start to the fiscal 2018, strategic investments and buyouts as well as robust EBITDA growth view. In the past six months, the company’s shares have gained 28%, against the industry’s decline of 8.7%. However, these signs of optimism are clouded by decline in Television Production revenues and fewer movies in fiscal 2018. Let’s delve deeper and find out more.
Lions Gate Entertainment always seeks strategic acquisitions and alliances to enhance competitive position and maximize returns, along with building a diversified portfolio for future growth. In fiscal 2017, Lions Gate completed the acquisition of media and entertainment company Starz. In first-quarter fiscal 2018, Media Networks’ segment formed after the acquisition of Starz reported revenue growth of 9.2% year over year on account of Starz new series American Gods and The White Princess as well as due to the fourth season of the hit series, Power, which returned at the end of reported quarter. Recently, Lions Gate and world’s leading leisure park operator, Parques Reunidos have entered into a strategic partnership to develop Lions Gate branded indoor entertainment center in New York's Times Square.
With the increasing popularity of eSports, this Zacks Rank #3 (Hold) company has invested in the eSports franchise The Immortals. The Immortals competes with famous online video games like League of Legends, Counterstrike GO, Overwatch and Super Smash Brothers. This move might surprise many as most are unaware of the popularity of eSports. Over the past few years, eSports competitions have increased and the company expects eSports market to grow over $1 billion by the next year. The company believes that eSports has “the potential to transform the face of sports entertainment.”
Lions Gate, which shares space with Twenty-First Century Fox, Inc. (FOXA - Free Report) , anticipates EBITDA growth in the range of low to mid-teens over the next few years. In first-quarter fiscal 2018, the company’s adjusted EBITDA came in at $181.5 million, compared with $10.6 million reported in the prior-year quarter.
Hurdles to Cross
Decline in Television Production revenues in the past couple of quarters have been a concern for investors. In first-quarter fiscal 2018, Television Production revenues dropped 18.6% to $156.6 million following a decline of 3.5% in the previous quarter. The company released 18 theatrical films in fiscal 2017 compared with 14 releases in the fiscal 2016.
However, fewer movie releases in fiscal 2018 compared with the previous year may hurt the company’s Motion Pictures revenues. Further, the escalating cost of motion picture production and marketing in recent years may jeopardize the margins.
2 Media Stocks to Steal the Show
Better-ranked stocks worth considering include Gray Television, Inc. (GTN - Free Report) and World Wrestling Entertainment, Inc. (WWE - Free Report) . Both the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Gray Television has delivered better-than-expected earnings in the trailing two quarters, with an average beat of 68.1%.
World Wrestling Entertainment has an impressive long-term earnings growth rate of 20%.
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