Breaking Dawn: Is There Life in Lions Gate as the Sun Sets on The Twilight Saga?

By Sterling Wong  NOV 30, 2012 3:40 PM

Even without Bella, Edward, and the gang, analysts are upbeat about the growth prospects of the company.


MINYANVILLE ORIGINAL Thanks to the power of tween girls and "Twimoms" who propelled The Twilight Saga: Breaking Dawn – Part 2 to box office mega success, shares of Lions Gate Entertainment (NYSE:LGF) hit a new all-time closing high of $16.86 on Thursday.
The previous record, achieved on November 9, was $16.68, although Lions Gate did hit an intraday high of $17.02 on November 1.
Like Warner Bros.’ (NYSE:TWX) consistently strong Harry Potter series, the Twilight movie franchise has yet to falter at the box office, and the final film of the series did not disappoint, grossing more than $600 million worldwide in under two weeks. Powered by Breaking Dawn – Part 2 and the first film in its other hit franchise, The Hunger Games, Lions Gate crossed $1 billion in North American box office receipts for the first time ever this year.
While Lions Gate is basking in the success of its pop culture-defining vampire series, the nature of the forward-looking stock market is such that a company can never go too long before it’s asked by investors: What’s next?
For Lions Gate, the question is especially pertinent. The fact that there are three more Hunger Games movies to be released in the next three years will ease some of the worries of investors. The fact remains, nonetheless, that the conclusion of the Twilight series will leave a gaping hole in Lions Gate’s movie slate.
“We can never say never to the possibility of Lions Gate producing more Twilight movies,” James Goss, a senior media analyst at Barrington Research, told Minyanville. Indeed, Lions Gate's movie division head Patrick Wachsberger told The Hollywood Reporter back in February that his studio would be open to making a sixth Twilight movie “if [Twilight author Stephanie Meyer] wishes to do it.”
Certainly, in a movie market increasingly dominated by sequels and franchises, popular brands never die. Disney (NYSE:DIS), for example, will be resurrecting the Star Wars series after acquiring Lucasfilm, while Warner Bros. is already planning a Batman reboot. The Dark Knight Rises, the last of Christopher Nolan’s critically  and commercially acclaimed Batman movies, just came out over the summer.
Lions Gate has also earmarked several other popular young adult book series to be developed into new golden goose film franchises to appeal to the core Twilight/Hunger Games youth demographic. A new potential franchise coming up in 2013 is Ender’s Game, the movie adaptation of the novel by Orson Scott Card, which will feature Harrison Ford and Ben Kingsley. Other potential franchises include adaptations of Veronica Roth's Divergent series, Erin Morgenstern's The Night Circus, and Patrick Ness' Chaos Walking trilogy.
"We have established ourselves as the number one studio in young adult franchises," said Lions Gate CEO Jon Feltheimer in an earnings call in May.
Goss also notes to Minyanville that even with Twilight out of the equation and even if future book-to-film adaptations underperform, Lions Gate still has plenty of room for growth. Its Hunger Games franchise, along with its investments in TV programming -- including series such as AMC’s (NASDAQ:AMCX) Mad Men, Showtime’s (NYSE:CBS) Weeds and Nurse Jackie, and FX’s (NASDAQ:NWSA) Anger Management -- will generate an estimated $900 million in EBITDA over the next three years. Lions Gate’s film library is comprised of over 13,000 titles and 23 TV shows on 16 networks.
Earlier this month, Goss reiterated his Outperforming rating on Lions Gate, and raised his price target to $21 from $19. Alan Gould of Evercore also upped his target to $20 from $18 in November, citing the company’s “young-adult franchises, predictable earnings growth with lower P&A costs, the de-leveraging of the balance sheet from $1.1 billion this year to $230 million by March 2015, and the possibility of a small dividend,” according to Variety. Likewise, Stifel Nicolaus raised its target on Lions Gate to $18 from $17 this month.

Lions Gate was down 2.55% to $16.43 as of 2:30 p.m. EST.

Twitter: @sterlingwong
No positions in stocks mentioned.

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