Lionsgate slides as analyst cuts rating on competitive, cost concerns

Bernstein analyst Todd Juenger downgraded Lionsgate (LGF.B) to Market Perform this morning, putting some pressure on the shares. The analyst argued that competitive investment from rival premium and Subscription Video On Demand, or SVOD, services has gotten much more intense, while also pointing to increased programming investment at Starz. MOVING TO THE SIDELINES: In a research note this morning, Bernstein's Juenger downgraded Lionsgate to Market Perform from Outperform and lowered his price target on Class B shares to $30 from $35. The analyst told investors that he believes competitive investment from rival premium and SVOD services has gotten much more intense, and noted that increased programming investment at Starz is a necessary but recurring cost of doing business, which means the normalized growth rate for Starz has to be lower. Juenger added that while Lionsgate likes to tell investors they offer higher-than-average growth at lower-than-average risk, he sees, at best, average growth, with higher-than-average risk. Further, M&A is always possible, but if discussions were on-going or imminent, the company would not choose to increase investment, lower guidance, and reinstate a dividend, the analyst contended. NEAR-TERM UPSIDE MUTED: Last week, Barrington analyst James Goss lowered his price target for Lionsgate to $34 from $40, while reiterating an Outperform rating on the stock. The analyst noted that with the company's repositioning its film slate under new leadership, and increasing its investment in programming for Starz, Lionsgate sees more muted growth in 2019, with a significant ramp in 2020. While Goss expects near-term upside to be muted, he believes the Starz service will be a more attractive offering in the "shifting media landscape," which should provide further opportunities for long-term growth. INDUSTRY CONSOLIDATION: According to a report by CNBC earlier this month, Comcast (CMCSA) could consider topping Disney's (DIS) bid for 21st Century Fox (FOXA) if regulators approve AT&T's (T) acquisition of Time Warner (TWX). While no decision has been made by Comcast, Disney is already considering responses in case Comcast makes a run at Fox, the report added. On December 14, Disney and 21st Century Fox announced they had entered into a definitive pact under which Disney will acquire 21st Century Fox, including the company's Film and Television studios, along with cable and international TV businesses, for approximately $52.4B in stock. As part of the deal, Fox will spin off Fox Broadcasting network and stations, Fox News, Fox Business, FS1, FS2, and Big Ten Network to its shareholders. PRICE ACTION: In later morning trading, Class B shares of Lionsgate had dropped over 1% to $26.90.