This image released by Lions Gate shows Josh Hutcherson as Peeta Mellark, left, and Jennifer Lawrence as Katniss Everdeen in a scene from "The Hunger Games"Murray Close/The Associated Press
A steep drop in the share price of Lions Gate Entertainment Corp. could be a buying opportunity as audiences flock to the company's latest Hunger Games movie and analysts anticipate more box-office momentum.
The stock sank 10.5 per cent on Monday, even though The Hunger Games: Catching Fire was reported to have raked in $161-million (U.S.) across the U.S. and Canada, a record for an opening weekend in November, according to media-measurement firm Rentrak Corp. The number was revised late Monday to $158.1-million.
While that is the sixth-largest opening on record, analysts had set their hopes even higher, with most expecting the much-hyped film to pull in $165-million. It's a classic "buy on the anticipation, sell on the news" reaction, said Ascendiant Capital Markets analyst Marla Backer, who called some of the sky-high estimates "unrealistic."
Investors saw the miss as a chance to exit Lions Gate, which has doubled over the past year and hit a record high of $37.81 on the New York Stock Exchange in September.
For several analysts, though, Monday's sell-off is an opportunity to buy more shares.
In addition to the first Hunger Games film, the company's recent successes include the summer movie Now You See Me and the Netflix hit Orange is the New Black. It plans to release the highly anticipated Divergent, starring Kate Winslet and Ashley Judd, in the coming months.
"The dip in the price of Lions Gate creates a more attractive entry point, in our view," said Barrington Research analyst James Goss, who has a "buy" rating and $41 price target on the stock.
Lions Gate shares closed down $3.53 to $30.23 on Monday. About 12 million shares were traded, which is about 7.5 times the average daily volume.
Among the 13 analysts that cover Lions Gate, 11 have a "buy" or equivalent rating, while two recommend investors "hold," according to Thomson Reuters I/B/E/S. The consensus 12-month price target is $38.92.
Entertainment stocks have been hot over the past year. DreamWorks Animation SKG Inc. and Live Nation Entertainment Inc. have both nearly doubled while Viacom Inc. is up about 57 per cent, and Twenty-First Century Fox Inc. has risen 23 per cent since it was split off from News Corp. in June.
Benjamin Mogil, an analyst at Stifel Nicolaus, said Catching Fire, the second movie in The Hunger Games saga, fell short of what he had expected in North America, but left him impressed with its ability to attract foreign audiences. The movie rang up $147-million in international business, double that of the first movie in the series and a "more important" indicator of Lions Gate's future performance than North American sales alone, Mr. Mogil said.
"Assuming the trajectory continues, we assume the company will raise its three-year guidance," he said in a note. He has a "buy" on the stock and a $37 target price.
RBC Dominion Securities analyst David Bank recently raised his price target to $38, noting 25 of the company's past 30 films have been profitable.
Mr. Bank says Lions Gate shares are attractive as the company starts to build long-term franchises such as the four-part Hunger Games series.
"With content from new and existing franchises, as well as significant television and digital deals on the horizon, we continue to like the momentum we see at [Lions Gate]," he said in a recent note. "Lions Gate should also see the benefit of its growth in scale, which will provide more leverage on fixed costs, and allow [it] to realize other economies of scale."
Portfolio manager Cameron Hurst of Toronto-based Barometer Capital Management Inc., which bought Lions Gate shares for its clients a year ago, is also impressed: "We think the company is doing everything right." He found Monday's stock drop "a bit frustrating," but, barring a further slide in the price, plans to hold on to the stock.
Blockbuster openings
Best-ever opening weekend box office (North America, millions of dollars)
- 1. Marvel’s The Avengers – $207.4 (May, 2012)
- 2. Iron Man 3 – $174.1 (May, 2013)
- 3. Harry Potter And The Deathly Hallows Part 2 – $169.2 (July, 2011)
- 4. The Dark Knight Rises – $160.9 (July, 2012)
- 5. The Dark Knight – $158.4 (July, 2008)
- 6. The Hunger Games: Catching Fire – $158.1 (November, 2013)
- 7. The Hunger Games: $152.5 (March, 2012)
- 8. Spider-Man 3: $151.1 (May, 2007)