Pacific Crest Recommends Owning Lions Gate Into 'Now You See Me 2' Debut

'Now You See Me 2' is likely to have a strong debut, when it releases in the upcoming weekend, and should improve sentiment for Lions Gate Entertainment Corp. (USA) LGF, Pacific Crest’s Evan Wingren said in a report.

A strong debut should increase confidence in the company’s ability to generate profits from movies in FY17. This, combined with TV production growth and potential strategic M&A, should lend upside to Lions Gate’s shares, analyst Evan Wingren noted. He added that while the company should continue to benefit from “secular tailwinds in original content production and on-demand viewing,” it has no direct exposed to secular challenges facing TV networks.

NYSM2 Expectations

Wingren expects the movie to appeal to multiple demographics. He added, “We anticipate the film should be moderately well received by critics (likely similar to the original), which should support a solid opening.”

The analyst projected the first weekend domestic box office [DBO] of $25-$35 million, given the movie's cast, production quality, theatrical window and early demand indicators. This should support total DBO of $75-$125 million. “Every incremental $10 million in DBO above or below our expectations would likely increase or reduce our FQ1 EBITDA estimate by ~$4 million,” the Pacific Crest report stated.

Wingren has an Overweight rating on Lions Gate, with a price target of $27.