When most investors are down on a stock they own, they get depressed and sell.
Not so for Carl Icahn. Since he first bought shares of Lions Gate Entertainment Corp. (NYSE: LGF) back in mid-2006, the stock has fallen from around $10 per share to the current price of just over $7. Now Icahn has doubled his stake in the film house to 9.2%. Lions Gate is best-known for hit movies including "Crash" and "Saw", along with TV shows such as "Weeds" and "Mad Men." Icahn may see tremendous value in the company's library of films.
Vice Chairman Michael Burns told (subscription required) The Wall Street Journal that "Mr. Icahn and Lions Gate seem to share a similar vision of the growing value of content as platforms increase delivery around the world."
It'll be interesting to see if Icahn gets active in this company. He has said that he views the company as underleveraged, but current market conditions may make it tough for the company to pursue some of Icahn's favorite value-creation strategies: borrowing money to buy back stock and/or pursuing a sale or merger.
Wachovia upgraded shares of The Goldman Sachs Group Inc (NYSE: GS) to Outperform from Market Perform on expectations for greater pricing power given Goldman's position as the largest remaining independent securities firm.
Keefe Bruyette upgraded Investment Technology Group Inc (NYSE: ITG) to Outperform from Market Perform as they believe the company will take market share with the reshaping of the large wire-house brokerage community. The company's target was raised to $37 from $33.
Broadpoint raised Hoku Scientific Inc (NASDAQ: HOKU) to Buy from Neutral as they believe the contract with Tianwei New Energy reduces financing risk.
Lions Gate Entertainment (NYSE: LGF), the little studio that makes big waves in Hollywood with franchise hits such as Saw and Hostel, distributed its annual earnings numbers on Friday after market close. For fiscal 2008, revenues leaped like a lion (you knew that was coming, don't kid yourself) to $1.36 billion, which represented top-line appreciation of 39%. So far, an excellent start. But, it's the bottom line where things start to get ugly. Lions Gate reported a net loss of $0.62 per diluted share; in 2007, the studio booked net income of $0.25 per share. That can't be pleasing to shareholders. According to Marketwatch, Lions Gate did not meet expectations, as some on Wall Street believed the loss would be closer to $0.50 per share (the company did beat on the top line, though). Things were rosier for the fourth quarter, as revenues jumped over 50% and net income climbed 19% to $0.22 per share. Unfortunately, expectations were again too high, as analysts were hoping for $0.37 per share.
The cash flow is a little more pleasing. Operational cash flow increased just shy of 50% to $89.2 million. And the company adjusted this stat even further to come up with a free-cash-flow figure of nearly $137 million (the company adds back the effect of borrowings for production obligations). The huge problem here is a familiar story: rising costs for marketing and distribution. This isn't unique to Lions Gate; competitors such as Disney (NYSE: DIS), Time Warner (NYSE: TWX), Viacom (NYSE: VIA), and Sony (NYSE: SNE) all face this same issue. Management reported that costs for Lions Gate in this regard rose well over 100%.
Lions Gate is a tough one for me. Here's the thing: I love the movie business, and Lions Gate is definitely a more direct play on the business than what you get through a Disney or a Time Warner due to the scales involved. Lions Gate has some great franchises under its belt, and it tends to go for niche, edgy content. Plus, the cash flow is pretty cool.
MOST NOTEWORTHY: Time Warner Telecom, Verigy and Brinker were today's noteworthy initiations:
Friedman Billings expects Time Warner Telecom (NASDAQ: TWTC) to post free cash flow growth above consensus expectations and believes carrier spending-concerns are overdone. The firm initiated shares with an Outperform rating and $20 target.
Oppenheimer initiated Verigy (NASDAQ: VRGY) with a Perform rating and $23 target, pointing to the company's tough year over year comps as PC unit growth slows in 2008 as well as its exposure to flash memory chips.
Brinker (NYSE: EAT) was assumed with a Neutral rating at Suntrust, as they expect Chili's to continue to be impacted by weak consumer spending.
OTHER INITIATIONS:
Baird assumed Ulta Salon (NASDAQ: ULTA) with an Outperform rating and $18 target.
Lions Gate (NYSE: LGF) was initiated at Jefferies with a Hold rating and $10-$11 target.
Landstar System (NASDAQ: LSTR) was initiated with a Market Perform rating at Morgan Keegan.
Lions Gate (NYSE: LGF), the feisty little studio that is responsible for torture-porn franchises Saw and Hostel, has hooked up with Apple (NASDAQ: AAPL) to see if consumers care about owning digital copies of the movies they buy on DVD and Blu-ray format.
According to the following press release, Lionsgate will include an iTunes digital version of select projects on certain home-video releases. The digital copy will allow users to transfer a movie to an iTunes account, so it could then be viewable on multiple devices like PCs or Macs, iPods, Apple TV and iPhones. First up for the iTunes digital treatment will be Sylvester Stallone's Rambo -- yes, the old soldier is still around -- to be released to home video in May.
As the studio makes clear in its press release, this is all about experimentation with the promotion of new distribution models. Lionsgate wants to efficiently, and effectively, create new opportunities for its library. It's not alone -- Disney (NYSE: DIS), Viacom (NYSE: VIA), Time Warner (NYSE: TWX), Sony (NYSE: SNE) and General Electric's (NYSE: GE) NBC Universal asset are all on a never-ending study of how best to leverage the digital era to make money from content portfolios. Lionsgate wants DVD buyers to realize that they can use iTunes to buy movies from its catalog. It's a bit weird to me, though, since one would figure that a person who buys a DVD will probably just access that particular content from the DVD itself. I understand the value of transferability, of course, but if Lionsgate -- or any content provider, for that matter -- simply ensures that each digital product sold online contains unique, compelling extras that cannot be found in any other format, then a digital library will be that much easier to monetize.
At any rate, it will be interesting to see how Apple and Lionsgate do with this scheme. Apple and its iTunes brand are certainly powerful drivers of digital distribution, so maybe users will perceive a value from the digital copies.
Disclosure: Steven Mallas owns shares of Disney and General Electric; positions can change at any time.
American Electric Power (NYSE: AEP) has agreed to pay penalties totaling $15M to end a Clean Air Act lawsuit brought by the Justice Department for the EPA, reported the Wall Street Journal (subscription required).
In 1992 Ecuador left OPEC, but this month is expected to rejoin the organization, according to the Wall Street Journal.
The UK is going to purchase 140 armored vehicles from Force Protection (NASDAQ: FRPT) for use in Iraq and Afghanistan, according to the Associated Press.
India's Reliance Retail has won the exclusive marketing and distribution rights for Apple (NASDAQ: AAPL) stores in India. The first Apple-owned store in India is scheduled to open at the end of this month, reported the Economic Times.
MOST NOTEWORTHY: Cypress Bioscience, Banc of America, Insulet, Taleo and Vocus Inc were today's noteworthy initiations:
Friedman Billings started shares of Cypress Biosciences Inc (NASDAQ: CYPB) with an Outperform rating and $22 target, and is positive on the company's lead product milnacipran, in Phase III studies for fibromyalgia. The firm expects a 1Q09 launch and believes the U.S. market could be as large as $7B.
Goldman resumed coverage of Bank of America Corporation (NYSE: BAC) with a Buy rating and $63 target as they believe the company has around $22.5B of unrealized gains in its strategic investment portfolio. Goldman also added BAC to their Americas Buy List.
Insulet Corporation (NASDAQ: PODD) was initiated at William Blair with an Outperform rating. The firm believes the unique features of the OmniPod will allow PODD to capture a meaningful portion of the 300,000 current insulin pumpers in the United States.
Soleil started shares of Taleo Corporation (NASDAQ: TLEO) with a Buy rating and $35 target and believes the company's recent growth pace can continue.
Shares of Vocus Inc (NASDAQ: VOCS) were also initiated at Soleil with a Buy rating and $39 target. The firm believes the company can gain share in the early stage market for public relations software given its on-demand model and low price entry point.
Barron's Online's (subscription required) "Inside Scoop" column reported that American Express Company (NYSE: AXP) Director Jan Leschly spent $2M on 32,000 shares -- the largest purchase at American Express in four years.
Electronic Arts Inc (NASDAQ: ERTS) and Hasbro Inc (NYSE: HAS) have joined forces to create electronic versions of popular board games such as Monopoly and Scrabble, according to the Wall Street Journal (subscription required).
Another former Ford Motor Company (NYSE: F) executive, Sir Nick Scheele, has joined the bidding war for the company's Jaguar and Land Rover divisions, reported the Financial Times (subscription required).
British retail chain WH Smith is among several companies seeking to buy the U.K. operations of troubled bookseller Borders Group Inc (NYSE: BGP) , reported the Telegraph.
People are buying Marshall & Ilsley Corporation (NYSE: MI) because it is a bargain when you consider that Marshall is spinning off to shareholders its traditional banking and processing business in Q4.
One safe and steady stock in these volatile markets may be Iron Mountain Inc (NYSE: IRM), the world's largest provider of information storage and protection, whose business has been rock-solid and whose stock has kicked up despite the market's wild swings.
Shinhan Financial Group (NYSE: SHG), which has very solid credit metrics and top-quality loan portfolios, is attracting positive attention.
World Wrestling Entertainment Inc. (NYSE: WWE) shares have plunged more than 5% over the past month as investors fled Vince McMahon's muscle-bound empire in the wake of the Chris Benoit tragedy. The stock is headed for an even bigger fall in the coming months as the company grapples with congressional scrutiny, potential lawsuits and long-overdue increased government regulation.
Nonetheless, WWE is something that truly adventurous investors should consider. The shares are trading at a multiple of 25, which is dirt cheap compared with its peers such as Playboy Enterprises Inc. (NYSE:PLA)'s 130 and Lions Gate Entertainment Corp. (NYSE: LGF)'s 53. Though profit and sales are expected to fall this year, analysts expect WWE to rebound next year.
When WWE holds its earnings conference call on August 2, there no doubt will be plenty of questions about Benoit, steroids, declining ratings and potential share buybacks. WWE management should also be scolded for its stupid decision to air a tribute to Benoit.
But some long term perspective also is in order. Big media companies including Viacom Inc. (NYSE: VIA) and News Corp (NYSE: NWS) would love to buy WWE to gain access to its huge library of content and rabid fan base.
Like it or not wrestling has been part of the pop culture landscape for a long time. Eventually, some other personality will come along that will make people forget the Benoit murders.
At that point, investors who hung in there will have their patience rewarded.
Lions Gate Entertainment Corp (NYSE: LGF), which has been a bright light in the otherwise dim movie industry recently, has found success making low budget movies aimed at the 20-30 year-old audience. Here is a list of some of their more notable recent releases, sorted by their estimated budgets. None of the movies has a rating milder than PG-13.
Hostel ($4.5M est. budget / $47.3M gross)
Diary of a Mad Black Woman ($5.5M est. budget / $50.3M gross)
Crash ($6.5M est. budget / $54.5M gross, won Best Picture Oscar)
Crank ($12M est. budget / $27.8M gross)
Employee of the Month ($12M est. budget / $28.4M gross)
Saw III ($12M est. budget / $80.1M gross)
Hotel Rwanda ($17.5M est. budget / $23.4M gross, nominated for 3 Oscars)
From the above list, you can see Lions Gate's winning formula. All their successes have budgets under $20 million dollars, and most fit into three categories: Movies that push the limits of violence and gore (Hostel, Crank, Saw); low-brow adult-themed comedies (Diary of a Mad Black Woman, Employee of the Month); and edgy dramatic works that gain critical appreciation (Crash, Hotel Rwanda).
Now, here is the problem -- neither the movie the just released, Happily N'Ever After, nor the movie that is making noise today with its addition of Paula Abdul to its cast, Bratz, fits this formula.
MOST NOTEWORTHY: Motorola (MOT) and Lions Gate Films (LGF) top today's modest list of upgrades.
Matrix USA upgraded Motorola, Inc. (NYSE:MOT) to Strong Buy from Buy as it believes strong demand for handsets is leading to increased market share for the company. Matrix set Motorola's intrinsic value at $34 a share.
Janco upgraded Lions Gate Entertainment Corp. (NYSE:LGF) to Buy from Accumulate based on the belief that the Street overreacted to the third-quarter earnings miss and underestimated the probable 2008 inflection point in EBITDA.
OTHER UPGRADES:
C.E. Unterberg upgraded Hurray! Holding (NASDAQ:HRAY). The firm expects Hurray! to report solid third-quarter results and guidance, and said the company is a potential takeover target given its music assets.
Suntrust Robinson Humphreys upgraded Barnes & Noble, Inc. (NYSE:BKS) to Buy from Neutral based on improved visibility and modest comps.
Fall earnings are winding down, but there were still a number of notable companies reporting this week.
Excellent
AES Corporation (NYSE:AES) 27c per share vs analyst expectations of 21c - at $22.45 (yesterday's close) the stock is up 42% year-to-date and is near its 52-week high of $22.66.
American International Group (NYSE:AIG) $1.53 vs $1.42 - AIG is only now returning to its levels from the beginning of the year with just over a 2% return YTD. The stock is up more than 2.5% today.
Fluor Corporation (NYSE:FLR) 31c vs (12c) - while FLR is up more than 20% in the past year, its YTD return is only 8% and at $83.39 is trading within its 52-week range of $68.70-$103.85
JC Penney (JCP) $1.26 vs. $1.23 - JCP had an amazing run. YTD return is nearly 45%. The stock is up another 1.3% today to $80.61, very near its 52-week high of $81.40 set yesterday during the session.
On the Fence
El Paso Corporation (NYSE:EP) 16c vs 16c
Watson Pharmaceutical (NYSE:WPI) 33c vs 34c
Walt Disney Company (NYSE:DIS) 36c vs 34c
Awful
Federated Department Stores (NYSE:FD) 20c vs 25c
IMAX Corporation (NASDAQ:IMAX) (30c) vs 5c
Lions Gate Entertainment Corp. (NYSE:LGF) (14c) vs (2c)
Earnings review from Tedd Cohen of TheFlyOnTheWall.com (subscription required).
I've pointed out that Apple's ability to negotiate with movie industry executives to be able to allow iTunes Music Store to carry videos will be key in Apple's plans to continue making the iPod the hippest media device around. Macminute points out an article that confirms that Lions Gate Entertainment has plans to offer movies through iTunes, as well as MovieLink and Cinema Now, and this will happen before the end of the year. At that point, will we see a name change? ITMS could go from iTunes Music Store to iTunes Media Store.
This places the iPod in a crucial place. The iPod is the storage center for an increasing ecosphere of iPod-enabled objects. From cars to computers to soon TVs, putting Apple at the top of pyramid of media devices. There is no resting on laurels here, the moment someone stops someone else can step up. We saw this happen when Apple snapped the lead away from Creative.
There are some less-than-positive pieces to this piece of good news for Apple. Unlike with the music offerings, Apple doesn't have exclusivity in its movie offerings, so customers will have a wide variety of services to choose to try. This works in the customers' favor, but Apple won't have the easy edge it snagged before. Secondly, Apple is supposedly choosing a rental approach for the movies.
I think the second issues will have the greatest impact. Are customers ready to pay but not get to keep the media around? Certainly in the past online customers haven't seemed too excited about the idea of this, can even Apple's hype change the average consumers mind? It will probably depend on the price.
Tobias Buckell is a freelance blogger, futurist, and author who grew up in the Caribbean. He owns shares in Apple.
Lionsgate Films partnered with Starbucks (SBUX) this year on promotion of the film Akeelah and the Bee, which you might recall was a less-than spectacular campaign involving cup sleeves like the one pictured at right. The promotion will continue with DVD sales of the film, which grossed a disappointing $18.8 million on 2195 screens.
Now Lionsgate has said it will cut its losses after a disappointing first quarter. Starbucks may have better luck with its book club, but it's tough selecting creative projects that will be acceptable to a broad range of customers.
The coffee retailer's "The Way I See It," campaign of placing quotes from various thinkers brought its own controversy when introduced. Not the substance of the quotes themselves so much as the political views, and even lifestyles, of some of the sources, which were deemed offensive and/or biased by some critics.
Starbucks won't please everyone, but seems intent to try not displeasing anyone. Focusing on sentimental heartwarming fare like the spelling bee movie and Mitch Albom's slender lightly-spiritual works seems prudent, if not incredibly inspired.
Michael Canfield is a private investor, a business and media writer, living in Seattle. He doesn't own stock in Starbucks.
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I've pointed out that Apple's ability to negotiate with movie industry executives to be able to allow iTunes Music Store to carry videos will be key in Apple's plans to continue making the iPod the hippest media device around. Macminute points out an article that confirms that Lions Gate Entertainment has plans to offer movies through iTunes, as well as MovieLink and Cinema Now, and this will happen before the end of the year. At that point, will we see a name change? ITMS could go from iTunes Music Store to iTunes Media Store.
Lionsgate Films partnered with Starbucks (
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