The international and domestic growth stock markets broke out in December 2011 and again in January 2012 before topping out in March, by which point LGF had doubled in price. We have also noticed that rallies in LGF have historically been more likely to occur toward the second half of any year because the company tends to commit resources early in the year preparing for those latter (more important) quarters. We expect this pattern to continue this year as well.
Finally, the short-term technicals are also confirming the potential for a continued breakout this quarter. The stock bounced off support between $13-13.50 early this week and broke through to over $14. Although there is some short-term potential resistance near $15 per share, a continuation of the prior trend could hit $16.50-$17 per share by the next earnings report (indicated by the green bar on the next chart).
Earnings estimates have already been raised 82% for the next quarter — which is dramatic, and very unusual among LGF’s peer group.
Lions Gate Films (LGF)Chart courtesy of MetaStock
Earnings estimates for next quarter are higher than they were for the first quarter of 2012, when the stock was priced at $16 per share. There is also a strong consensus estimate that revenue in 2013 will finally start to rise after remaining flat for most of 2010-2012. Those estimates are likely to be confirmed next quarter and could send the stock over $20 per share quite easily if global economic conditions ease.
In short, we love finding undervalued but aggressive firms like this during a soft market