Crash Scores Big In Oscar Nominations

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Crash won nominations for Best Picture, Best Director, Best Supporting, Best Screenplay, Best Editing, and Best Song in the Oscar nominations announced this morning. While the investment implications are extremely limited, this a real feather in the cap for Lionsgate (LGF). Just a few months ago, the film was considered a real long shot for nominations but a concerted effort by the company to garner nominations paid off. Crash will shoot up the DVD sale and rental charts, providing a nominal boost to LGF’s earnings. More importantly, management’s success with the film from the theatrical run through home video and now Awards season establishes the studio as a place where producers, directors, actors, and screenwriters will want to take their best projects. Lionsgate has crashed the Oscar party that used to be hosted by Miramax. In the long run, that can help the stock price by supporting shareholder value through the prospects of a better pipeline of movie and TV projects.

Insider Buying At Lionsgate

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A couple of quick follow-ups to my Weekend Box Office Update that support my bullish trading bias on Lionsgate (LGF). First, this weekend’s Barron’s contained positive commentary on LGF in the Inside Scoop column. The column noted recent insider buying by senior executives along with a big boost in the position of Carl Icahn protégé Mark Rachesky. Rachesky reported a 7.3% position last August but his latest filing shows the stake has been raised by about 2 million shares to 10 million shares, or almost 10% of LGF.
The article quotes Ben Silverman of InsideScore.com as noting that Rachesky has a good track record and LGF represents his second largest holding. I am less impressed by the insider buying by executives as the amounts are rather small. However, last summer, the combination of the initial Rachesky filing and similar-sized buys by executives popped LGF shares. With a series of positive news items in the recent past and coming over the next month, LGF shares could be headed back toward the summer and fall highs in the mid $10 area.
Separately, one message board poster on LGF on Yahoo! (YHOO) noted that the better-than-expected opening for Big Momma’s House, with the leading part played by an overweight man posing as as older African-American woman could be good news for LGF’s Madea’s Family Reunion, which opens the last weekend in February. Madea is a similar character created by Tyler Perry, a rising African-American star.

Why Apple Is Still A Growth Stock?

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Over on Street Insight, my fellow contributor Jeff Bagley and I have been tag-teaming the defense of Apple Computer (AAPL) since the company reported its December quarter EPS. We were both bullish prior the earnings release and I really feel Jeff has hit it on the head with his long-term bullishness based upon the unusually large opportunity for AAPL to enhance revenue and profits. Basically, Jeff, along with Cody Willard on Real Money, has noted that AAPL is one of the only really big cap stocks that offers the prospect for sustained 20% plus earnings growth over a multi-year period; sustained on top of the huge earnings gains being driven recently by the success of the iPod. Due to AAPL’s unique status as an actual mega cap growth stock, Cody, Jeff, and I are willing to live with the high valuation and occasional significant downside volatility. And speaking for myself, trimming the position on the way up makes the downside periods less painful.
To give you some sense of why AAPL may offer such a high level of sustainable growth, consider the company today against the potential opportunity the company could have in PC and cellphone sales. Last year, AAPL sold almost 32 million iPods generating $6.2 billion in revenue with an ARPU of $195. Additionally, AAPL sold 4.7 million Macs, pulling in $6.4 in revenue at an ARPU of $1,350. Put those two together and you get $12.6 billion in revenue….

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Time Warner Earnings Preview: Will The Boredom End?

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If there were an equation that measured media and analyst coverage vs. stock price volatility, Time Warner (TWX) would probably produce an answer nearing infinity. Dare I say a google.
Tomorrow provdes the stock another chance to offer some excitement when TWX reports 4Q05 earnings. The results are expected to be quite strong, consistent with analyst expectations and management guidance. Year-to-date, revenue and EBITDA growth are an anemic 2.5% and 3.9%, respectively. All year management has stated that EBITDA growth would be in the upper single digits for the full year, so much is riding on the fourth quarter. Due primarily to an easy comp and strong quarter in theatres and home video in the Filmed Entertainment division, analysts are expecting EBITDA growth ranging from 16-20% in the quarter. Continued steady growth at Cable and Networks should also contribute while growth in Publishing and AOL may lag. For the record, revenue is expected to come in at $2.87 billion, EPS at 22 cents, and EBITDA up 18%….

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Knight Ridder: Weaker Than Peers As Buyout Awaits

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While Knight Ridder’s earnings report was sloppy with weak December trends, I am surprised the shares would trade down 2% given that the investment case is totally controlled by the auction underway for the company. On this front, management led off the call by announcing it would take no questions. One analyst did have the guts to act about recent newspaper reports that the company is promising an additional $140 million in cost savings (significant on and an EBITDA base of $600 million). Management would not comment except to say that you should not believe rumors printed by non-KRI owned newspapers. The attempt at humor was appreciated but, in my opinion, this is a relevant question for current shareholders and should have been more directly addressed….

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Lionsgate Story Shaping Up

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Lionsgate (LGF – recently renamed from Lions Gate Entertainment) announced the sale of its studio production facilities in Canada for $36.1 million. To be honest, I did not even realize the company owned its own facilities. According to a report I just read, this asset was going to generate less than $5 million in revenue and a little over $1 million in EBITDA. Seems like a good price to me. LGF has about 110 fully diluted shares outstanding so this is not a particularly meaningful transaction but I still like the idea of realizing value from a non-core asset. Several studios have been adding sound-stage capacity in Los Angeles so LGF should not have trouble finding capacity for its production slate of movies and television shows.
A handful of Northlake clients and I remain long a small amount of LGF looking for the end of February release of Madea’s Family Reunion, the sequel to Diary of a Mad Black Woman, as the next major catalyst. Between now and then, LGF has several films in the DVD release window that should sell well. In fact, Lord of War (LOW) was released last week and LGF announced unusually strong initial sales of 2.5 million units. This film was a disappointment at the box office, grossing just $24 million. LGF usually is able to realize 110% of domestic box office for its DVD releases, implying that LOW should have brought in around $30 million. Assuming a wholesale price of $15 per unit, LOW is headed for closer to $40 million. This is very profitable revenue, potentially producing an operating margin north of 40%…..

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Weekend Box Office Report: Oscar Nominations Coming Soon

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The weekend box office saw the top dozen films gross 5% less than a year ago but with the final weekend in January in the books, Hollywood has to be pleased with 2006 so far. Heading into this weekend, the box office was up more than 9%, a nice turn from the dismal 2005 performance, and even adjusted for ticket price inflation the increase implies ticket sales are in positive territory so far this year.
20th Century Fox had its first number hit in over five months as Big Momma’s House 2 opened to a better than expected $28 million. 20th Century Fox is a subsidiary of News Corporation (NWS/NWS.A). NWS is a giant global company but it never hurts to get the #1 spot at the weekend box office and the fact the film is a sequel give could give a modest boost to the original film in the home video rental window….

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Thoughts on the Disney-Pixar Merger

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It is hard to add value on the Disney-Pixar transaction. I received a dozen virtually identical analyst reports and CNBC was basically DisneyPixarVision for two days. I do want to highlight notes by Rich Bilotti of Morgan Stanley and Dave Miller of Sanders Morris Harris. It is not really anybody’s fault that the notes were similar as the story has just been awfully well covered.
You can find a slide presentation on the DIS and PIXR websites along with the press release and a replay of the conference call. There was one slide that did jump out at me and I think it explains why the merger is receiving universal praise. Here is the key excerpt: (See Continued Reading…)

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Knight Ridder Earnings Preview: Waiting On The Auction

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It would be very surprising if anything of substance came from the earnings release and conference for the 4Q05 report by Knight Ridder (KRI). First, the company is in the midst of an auction with presentations being made to a number of interested industry and private equity buyers. This will probably restrict what management can say in its press release and on its conference call. Second, even if management does decide to be chatty, the fact that last week saw earnings reports from New York Times (NYT), Dow Jones (DJ), and Gannett (GCI) means we already have a pretty good picture of what is happening in the newspaper industry. Each of those companies revealed some strengthening in advertising trends in December, particularly in the national category. While each also noted that the seasonally small January was not confirming the trend, all remained confident that March quarter numbers would show improvement. Let’s see if KRI confirms this outlook or not….

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Gannett: A Little Better But Is It Sustainable?

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Gannett (GCI) shares are rallied strongly, up about 3%, following the company’s fourth quarter earnings report issued before the open on Friday. The action is similar to the response to earnings from New York Times (NYT) and Dow Jones (DJ). Investors are reacting positively to stronger than expected trends in December advertising, hoping this time renewed advertising strength won’t be a false start. All three companies reported EPS that were slightly better than expected which also drove some optimism. Most of the strength is in national advertising, something these three companies shares vs. other newspaper stocks that are driven by more by local ad trends. Local trends remain weak across the board…..

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