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April 24, 2006

Lionsgate Worth A Trade on Akeelah Opening

There could be some excitement around Lionsgate (LGF) this week ahead of Friday's opening of Akeelah and the Bee. LGF shares received a boost last year when Starbucks (SBUX) announced it had selected the film as its first entry into the movie business via in-store promotion.

I think it is possible that LGF could trade up this week in anticipation of a solid opening for the film. SBUX has been promoting the film in its stores since early April and LGF is supposed to be spending a good-sized advertising budget of around $15 million. The film received sneak previews on over 900 theatres this past Saturday as LGF tries to build buzz. The cast will appear on Oprah this week and so far reviews are excellent.

After moving up from a tax loss selling depressed year end close of $7.68 to $10.29 at the end of March, LGF shares have pulled back steadily this month to $9.40, down almost 9% from the high. I still have serious reservations about LGF that led me to sell the stock well below current prices, but I think the recent pullback leaves room for a nice run this week as the anticipation of Akeelah's opening builds....

Observers think the film could head toward a total U.S. box office run of $40 million. This would suggest an opening weekend of $14 million and several early estimates are in this range. The film is going to open on more than 2,200 theatres, making $14 million work out to a little over $6,000 per screen. The film is going to play heavily to families so possibly the recent >b>Disney release The Wild which did a disappointing $4,000 per theatre on its opening weekend is a good comparison. Other African-American themed films including LGF's own Tyler Perry films, Barbershop, Beauty Shop, Waiting to Exhale, and How Stella Got Her Groove Back earned between $5,000 and $14,000 per screen on their opening weekends in anywhere from 1,250 to 2,650 theatres. For Akeelah, these comps translate to $9 million to $31 million. Given discounted family tickets and lack of kids available to attend afternoon showings on Friday, an opening in the lower half of that range seems like the best bet.

Personally, I'd bet the over on $14 million. I think that is enough to impress and allow the shares to hold any gains it makes this week next Monday, so LGF sets up as a bullish trade this week worth holding over its opening weekend on the potential for a positive box office surprise.

Posted by Steve Birenberg at April 24, 2006 02:08 PM in LGF