Lions Gate Entertainment Corp. Earnings Preview: 3 Things to Watch for

By Markets Fool.com

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Shailene Woodley as Tris and Theo James as Four inInsurgent, which enters theaters on March 20. Source: Lionsgate.

Shares ofLions Gate Entertainment Corp. stock entered the day down over 7% year to date versus a marginal loss for the S&P 500.Will the slide continue, or are better days ahead? A lot depends on how well the business performs. Here's a closer look at what analysts expect to see when this budding Hollywood power player reports fiscal third-quarter earnings tomorrow afternoon:

Fiscal Q3 Estimates Revenue YOY Growth EPS YOY Growth
Low estimate $746.60 million (11.1%) $0.54 (14.3%)
High estimate $881.24 million 4.9% $0.81 28.6%
S&P CAPITAL IQ CONSENSUS $778.71 million (7.3%) $0.69 9.5%

Source: S&P Capital IQ.

Investors are expecting a beat, and rightfully so. Three times in the past four quarters, Lions Gatereported more profit than Wall Street was targeting-- including an $0.11-per-share beat in last year's Q3:

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Earnings History FQ3 2014 FQ4 2014 FQ1 2015 FQ2 2015
Consensus $0.52 $0.45 $0.20 $0.16
Actual $0.63 $0.42 $0.34 $0.23
DIFFERENCE $0.11 ($0.03) $0.14 $0.07

Source: S&P Capital IQ.

Looking at the overall business, I'm watching for momentum in each of these three areas:

1. Spending discipline leading to higher margins. The thesis for Lions Gate stock is that CEO John Feltheimer and his team creatively deploy capital to keep costs low.Pre-salesof foreign market distribution rights toDivergentis a good example. In fiscal Q3, the studio should have benefited from shared production costs for both installments ofThe Hunger Games: Mockingjay, leading to higher margins despite Part 1underperforming its predecessor,Catching Fire, at the worldwide box office.

2. New licensing deals.Unlike larger peersTime Warner andWalt Disney, Lions Gate is still in the early stages of developing a rich licensing and merchandising business outside of syndicating the television shows it produces for various networks.Divergentis supposed to be the catalyst that changes that.Bringing in Peter Levinto head a games division should also help. Look for an update on the conference call.

3. Franchise expansion.March brings the release ofInsurgent, which the studio believes will earn at least $350 million worldwide versus just under $289 million for its predecessor,Varietyreports. Lions Gate is banking on being able to make many more franchises like this. Look for an update on the studio's ambitions during the conference call. Candidates includethe forthcoming dramaChild 44, which is based on a trilogy of books,anda TV or movie follow-upto 2013'sEnder's Game. A 2016 sequel to the mystery thrillerNow You See Meis already in the works.

Lions Gate Entertainment reports fiscal Q3 results Thursday after the market closes; check back herethen for our take on the report. And in the meantime, leave a comment to let us know what you're expecting, and what you think of Lions Gate stock at current prices.

The article Lions Gate Entertainment Corp. Earnings Preview: 3 Things to Watch for originally appeared on Fool.com.

When it comes to picking stocks,Tim Beyersroutinely diverges from the so-called "smart money." He's also a member of theMotley Fool Rule Breakersstock-picking team and theMotley Fool SupernovaOdyssey I mission and owned shares of Time Warner and Walt Disney at the time of publication. Check out Tim'sweb homeandportfolio holdingsor connect with him onGoogle+,Tumblr, or Twitter, where he goes by@milehighfool.The Motley Fool recommends Lions Gate Entertainment and Walt Disney. The Motley Fool owns shares of Lions Gate Entertainment and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.