Lionsgate's Blockbuster defense vs. Icahn

If the cliche is that a best defense is a good offense, in Lionsgate's case, the best defense a bunch of middle-aged action stars. "The Expendables" topped the box office for the second straight weekend, despite the debut of five new films. The film has grossed $65 million so far; if it keeps up its run and hits $85 million at the U.S. Box Office that puts the studio on track to earn between $30 million and $50 million from the film.

Today Lionsgate stock ended just a hair above Carl Icahn's offer price -- $6.50 per share. Icahn's bid expires on October 22, but many investors are watching carefully to make up their minds long before then. On Friday Lionsgate's low-budget horror film, "The Last Exorcism," opens. Wall Street will be watching to see if Lionsgate can keep up its success with the horror genre-- the "Saw" franchise has been a huge money-maker for the studio.

Lionsgate has been proving its strategy beyond the box office. "Kick-Ass" was a disappointment at theaters, but is turning into somewhat of a cult favorite on home video. The film's DVD debuted last week atop the charts, selling 1.4 million copies in the first week on sale. And over a third of the DVDs sold were high-margin Blu-Ray discs, above the industry average. Wunderlich Securities analyst Matt Harrigan points out that "Kick Ass" numbers show Lionsgate maintaining its track record of success in digital distribution.

And then there's the studio's TV business, which has been slowly but surely growing. "Mad Men," "Nurse Jackie" and "Weeds" have a total of 26 nominations for this Sunday's Emmys. Emmy statuettes don't translate directly into revenue, but they do give Lionsgate momentum in its battle with Icahn.

As Wunderlich's Harrigan pointed out, *right now* investors have very little downside in buying Lionsgate stock; they can always sell on October 22 if it drops. The question is: what kind of upside will we see before then? And can the stock break out of its trading range?

Questions? Comments?