On Tuesday, JPMorgan (NYSE:JPM) maintained an Underweight rating on Lionsgate (NYSE:LGF-A) with a steady price target of $8.00. The firm has adjusted its financial expectations for the company following its second-quarter fiscal year 2025 results. The revised forecast includes a decrease in consolidated operating income before depreciation and amortization (OIBDA) for fiscal year 2025 to $425 million, down from the previous estimate of $506 million.
The lowered expectations are primarily due to a reduced outlook for the Studio segment, now projected at $311 million compared to the earlier $389 million. This adjustment comes after Lionsgate revised its guidance to $300-320 million, citing underwhelming performance at the box office, notably for the film "Borderlands." The company attributed the film's poor results to pandemic-related delays, additional reshoots, and a challenging interest rate environment.
For the Television segment, Lionsgate noted a reassessment of demand following a strike and highlighted the impact on unscripted content. However, a stronger second half of the fiscal year is anticipated, with an increase in Motion Picture earnings expected in the fourth quarter due to a more favorable film lineup and Pay 1 deliveries for recently released content. The Television division is also expected to see a boost in scripted deliveries.
The firm's outlook for Starz remains unchanged with an OIBDA of over $200 million, which is seen as a baseline for the upcoming years. Looking into fiscal year 2026, JPMorgan predicts an overall improvement in OIBDA, with stable performance from Starz, increased television demand, lower unallocated rent expenses, and a stronger film pipeline including titles like "John Wick: Ballerina," "Den of Thieves 2," "Michael," and "Now You See Me 3."
Despite these projections, the firm sees more downside risks to its estimates, especially concerning film execution and potential soft demand from streaming services as they aim for higher profitability. Additionally, Lionsgate has confirmed that the proposed separation of the Studio and Starz is on track for completion by the end of the calendar year, pending approval.
While the separation could lead to better value realization and more options for mergers and acquisitions, JPMorgan remains cautious, questioning the level of interest from investors or buyers for Starz and potential limited suitors for the studio side.
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