On Wednesday, Loop Capital adjusted its outlook on Lions Gate Entertainment Corp. (NYSE:LGF-B) stock, reducing the price target to $7.00 from the previous $9.00, but kept a Hold rating.
The firm's decision follows a reassessment of the company's studio revenue projections, now set at $360 million, down from the prior $405 million estimate and below the management's expectation of $430 million. The decrease stems mainly from the anticipated impact of the "Borderlands" film on the studio's performance.
The analyst noted that the company is transitioning back to higher marketing expenditures and lower film margins as operations normalize following a strike.
With a shift towards new productions rather than relying on high-margin library sales, the film division's revenue composition is expected to change. Consequently, the firm's overall EBITDA forecast for Lions Gate has been revised to $487 million.
Last week, Lions Gate reported a $12 million EBITDA gain despite a $40 million revenue shortfall in its June quarter earnings. The company also confirmed its intention to finalize the separation of its studio and Starz by the end of the calendar year. The Board has proposed a 12% premium for the Class A shares as part of the plan to collapse the dual-class share structure.
The analyst remarked that the current stock price reflects the market's uncertainty about the impending split and concerns over Starz accounting for nearly 20% of the studio's revenue. Despite these issues, the studio is perceived as more appealing at its current valuation, which is 10.7 times the adjusted OIBDA forecast for fiscal year 2025, excluding stock-based compensation.
The report concluded that, barring a potential acquisition offer for the valuable film library, there are limited catalysts expected to drive the stock's performance until the fiscal year 2026 film slate is unveiled. Thus, the price target has been lowered to $7, and the Hold rating remains unchanged.
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