NEW YORK (
Lions Gate Entertainment
(LGF - Get Report) keeps to a winning formula of making movies that appeal across generations and also generate profits.
Led by smash hit versions of The Hunger Games books, Lions Gate grossed $1.1 billion in 2013 placing it in fifth position among Hollywood studios, slightly behind Sony/Columbia (SNE). The Santa Monica-based film studio has also gained 58% over the past 12 months compared to 21% for the S&P 500
Lions Gate even has a TV unit which brings in about 14% of the company's revenue, and has some big winners there as well with Mad Men and Nashville.
Now Lions Gate is hoping to get a similar lift from the Divergent Insurgent, starring Shailene Woodley and directed by Neil Burger of The Illusionist and Limitless. The film is scheduled for
release on March 21. A third film in the series, Allegiant is earmarked for March 2016.
Lions Gate's great success with the Hunger Games series and its efforts to avoid catastrophic losses has contributed to its soaring stock price.
On Feb. 6, the company reported third-quarter free cash flow of $117.4 Million. Net income in the fiscal third quarter through Dec. 31 more than doubled to $88.8 million, or 59 cents per share, from $37.8 million, or 27 cents per share, a year earlier.
Analysts polled by FactSet predicted 46 cents per share, so this was a significant upside surprise from the year ago quarter. Revenue increased by 13 percent to $839.9 million which bested the $833.5 million analysts had forecast. As the 1-year chart below illustrates, the market reaction to Lion Gate's latest quarterly financial numbers was rather subdued. The good news was mostly baked into the share price and that leaves Lions Gate stock still looking attractive after a meaningful correction of over 13% from the 52-week high.
LGF data by YCharts
Free cash flow wasn't as robust as the past quarter, but look at that orange line, the quarterly revenue per share trajectory. It suggests there's more upside ahead for this lean moviemaking machine which has only about 550 employees compared to nearly 10,000 employees at Warner Brothers.
The Hunger Games: Catching Fire has grossed $860 million at the worldwide box office, a 25% increase over the first Hunger Games film. The next two films in the franchise, The Hunger Games: Mockingjay Part 1 and The Hunger Games: Mockingjay Part 2 will be released worldwide on November 21, 2014 and November 20, 2015 , respectively.
The continuing box office draw of The Hunger Games series and the highly anticipated release of the film Divergent gives Lionsgate the potential for exceptional growth over the next 12 to 18 months. Then there's the ongoing growth in its TV unit which should help to further drive revenue.
Lions Gate Entertainment has had an impressive year, yet careful management and film financing may allow the company to continue to outperform its peers.
At the time of publication the author had no positions in the companies mentioned.