LION

Lionsgate Studios ($LION) Sparks Undervaluation Debate with $49M Major Shareholder Buying Spree

06/02/2025 10:33

Lionsgate Studios ($LION) is capturing investor attention with a major shareholder's significant buying spree amid recent stock price struggles. SEC filings reveal that major shareholder Liberty 77 Capital L.P. purchased approximately 7.4 million shares worth $49 million over two consecutive days, May 28-29. Stock price data shows $LION has been in a persistent downtrend since starting at $8.25 in early June 2024. The stock has been trading in a $6-7 range since the latter half of 2024, with a brief surge to $9 in February 2025 before retreating to current levels around $7.23 as of May 30. During the insider trading period of May 28-29, shares were trading between $6.67-6.77. Lionsgate Studios completed its separation from STARZ streaming business in May 2025, emerging as an independent entertainment company focused exclusively on film and television production. The spinoff received overwhelming support from over 99% of shareholders, allowing the company to concentrate on content creation. Known for the Hunger Games franchise, the company is actively developing new content including the film adaptation of Suzanne Collins' new novel 'Sunrise on the Reaping.' Liberty 77 Capital's purchases were substantial both in scale and timing. On May 28, they acquired 3.96 million shares at an average price of $6.65, followed by 3.45 million shares at $6.57 the next day, totaling $49 million in investment. This represented consecutive trading activity, with shares held indirectly through Cayman Islands-based Liberty 77 Fund L.P. and Liberty 77 Fund International L.P. The filing disclaims beneficial ownership except to the extent of pecuniary interest. Recent financial performance reveals some operational challenges. Q1 adjusted earnings per share of 21 cents significantly missed analyst expectations of 41 cents for the quarter ended March 31. However, quarterly revenue of $1.07 billion exceeded the expected $983.77 million, indicating strong top-line growth despite profitability pressures. Financial health metrics present mixed signals. The company projects negative free cash flow of $25.7 million in 2025, with less than three years of cash runway at current levels, raising liquidity concerns. Total liabilities exceed assets, and interest coverage remains weak. However, Return on Capital Employed (ROCE) has improved 56% over three years to 9.0%, demonstrating enhanced operational efficiency. The entertainment industry faces contrasting dynamics of AI technology adoption and escalating trade tensions. $LION partnered with AI firm Runway in September 2024 to integrate AI tools into creative workflows, aiming to enhance production efficiency and reduce costs. Conversely, potential U.S. tariffs on foreign-made films under the Trump administration could increase production costs significantly. From a valuation perspective, $LION presents compelling opportunities. Trading at a Forward P/E of 18.55x and Price-to-Sales of 0.51x, discounted cash flow analysis suggests an intrinsic value of $11.78 per share, implying approximately 27% undervaluation at current levels. With an enterprise value of $5.74 billion and market capitalization of $2.07 billion, the company trades within entertainment sector norms. Near-term outlook faces headwinds from recent earnings disappointments and cash flow concerns. However, operational improvements from the STARZ separation and AI technology benefits should gradually materialize. The major shareholder's substantial investment signals confidence in the stock's value at current price levels. Long-term prospects center on enhanced studio specialization and franchise expansion leveraging proven properties like Hunger Games. AI-driven production innovation should contribute to medium-term competitiveness. However, addressing excessive debt and negative cash flow remains crucial for sustainable growth. Analyst consensus maintains a buy rating with a median 12-month price target of $10.75, suggesting approximately 49% upside potential from current levels. Investors should closely monitor upcoming quarterly results for profitability improvement signals while weighing valuation upside against financial health risks.

You can receive notifications when news is published.