Lion in stock slump
MGM shares drop after 'Windtalkers' bow
David Miller of Sanders Morris Harris in Los Angeles reduced his rating on the stock to "hold" from "accumulate," with a target share price of $18.
Lion shares slipped 24¢ to $14.10 on Tuesday after a 14-cent drop the previous sesh. That made for a two-day fall of 2.6% despite an upbeat broader market.
Miller said he now believes MGM will post a loss for the third quarter, even though current company guidance for the period is break-even profitability.
"We believe the risk is high that MGM could guide the Street down for the rest of the year," Miller wrote in a note to investors circulated Tuesday.
MGM shares marked a 52-week low of $13.86 on Sept. 21 and carries a 52-week trading average of $17.92. Its 52-week high of $22.65 dates back almost a year to June 29.
A onetime $30 stock, MGM shares in March slumped from a plateau in the low $20s to a more recent trading plateau of $16-$17 after a discounted stock offering. The discounted offering was aimed at increasing the public float and lowering majority shareholder Kirk Kerkorian's stake to 77% from 81%.
Stock's latest tumble seems linked to investor concerns over poorly performing recent theatrical releases. "Windtalkers," a $115 million-$120 million production that marked an opening weekend of just $14.5 million, appears to rep the fourth consecutive money-losing wide release from the Santa Monica-based studio.
Though MGM is the most "pure-play" of all publicly traded studio companies, much of its cash flow is derived from Lion's large film and TV library and home-entertainment releases based on classic titles. But even before the release of "Windtalkers," concern circulated that the stock could take another hit if the World War II pic underperformed.
Last quarter, Lion took a $50 million charge against earnings for loses absorbed on "Rollerball" and "Hart's War," and in the prior period studio was socked by red ink from "Bandits." But it should be noted that MGM reduced its risk on "Windtalkers," selling off distribution rights in three foreign territories for more than $30 million.
Partly for that reason, some observers were taking the latest theatrical disappointment in stride.
"It wouldn't surprise me if there will be a minimal (earnings) charge for 'Windtalkers,' " Gerard Klauer Mattison analyst Jeffrey Logsdon said. "But I don't think it will be of the magnitude of what was done last quarter."
Logsdon, who recently relocated from Los Angeles to Boston, maintains a "buy" rating on MGM shares.
In a separate development, MGM Tuesday replaced accounting firm Arthur Andersen with Ernst & Young.
