Lions Gate slips as Wolfe Research downgrades, citing increased spending, slowing growth
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Lions Gate Entertainment (NYSE:LGF.A) shares slipped on Wednesday as investment firm Wolfe Research downgraded the entertainment company, citing worries over increased spending and slowing streaming growth.
Analyst Peter Supino lowered his rating on Lions Gate Entertainment (LGF.A) shares to peer perform from outperform, with a fair value range between $6 and $15, noting that Lions Gate (LGF.A) has underperformed the S&P 500 year-to-date by 18%.
"The stock has been under pressure due to increased investment activity, primarily at Starz, along with industry wide concerns related to slower streaming growth," Supino wrote in a note to clients.
In addition, Supino noted that Starz operating income before depreciation and amortization is "temporarily depressed," citing direct-to-consumer investments, particularly in international markets, making the company's EV/EBTIDA multiple higher than it has been historically.
Lions Gate Entertainment (LGF.A) shares fell 1% to $9.55 in premarket trading.
However, Supino noted that once Starz's operating income starts to return to normal, the company's EV/EBITDA multiple will return to a more normal range, "partially thanks to a strong growth outlook of the company's production assets."
Last month, Lions Gate Entertainment (LGF.A) signed a deal with Comcast's (CMCSA) NBCUniversal to bring the John Wick prequel series The Continental to Peacock instead of Starz.
Analysts are largely positive of Lions Gate Entertainment (LGF.A). It had an average rating of BUY from Seeking Alpha authors, while Wall Street analysts rate it a BUY. Conversely, Seeking Alpha's quant system, which consistently beats the market, rates LGF.A a HOLD.