Lions Gate Entertainment Corp. (USA) (LGF)

LGF is the most misunderstood media company on the planet. In the past 5 years, LGF has amassed an enormous library of content to distribute, which has increased their top line revenues by an average of 30% per year. For the past 4 years, LGF has delivered FCF near or above $100 million, with the most recent year ending with $137 million in FCF. LGF has also authorized a $100 million stock buyback program. It currently has $371 million in cash on its balance sheet, and about $328 million in debt that is in the form of convertible bonds w/ an average interest rate of only 3.1%. The conversion price on these bonds is around $14 per share or more than 40% the current price (which should ease concern about dilution). The reason why LGF is misunderstood is that most wall street analysts and investors who look at Wall Street really do not get the company, and this is evident most illustratively at the conference call when they ask very irrelevant questions. I want to try to explain some things. LGF did in fact have negative EPS last year of 62 cents per share (despite $137 million in positive free cash flow). There are multiple reasons for this loss. First, LGF's film slate last year was the largest and most significant in its history. When a movie company ramps up their slate, it is all but inevitable that they will have negative EPS. The reason for this is that for some bizarre reason, movie studios are forced to expense their P+A IMMEDIATELY, despite the fact that revenue from the movie comes over a time measured in years not quarters. 6 of the largest grossing movies in LGF's history have been released over the past 10 months, and revenue from these pics will be seen for YEARS. First in DVD sales/rentals, then in VOD, then in first run pay-cable, then second run cable, then other runs throughout the future. LGF still sells close to 100,000 copies of dirty dancing per year! The other reason for the EPS loss is that for another bizarre reason, is that half of the above discussed P+A costs come from PARTNERS, yet LGF has to expense it. LGF is a true growth story w/ over 39% revenue growth last year. It is amassing cash like a machine and it will continue to do so, especially after increasing distributional mechanisms come into play. From a fundamental standpoint this stock is incredibly cheap, trading at less than 9X trailing FCF, and about .8 times sales. LGF has been signing new deals every day to increase its distributional business both domestically and abroad. From TV to international, from movies to the web, LGF is expanding and creating the largest most prolific library in the history of content. I SUGGEST YOU GET ON BOARD.