Surprise, Surprise

Tinseltown Drama. Shares of Lion’s Gate Entertainment Corp (NYSE: LGF) climbed almost 3 percent on May 31 after the Hollywood production company beat fiscal fourth-quarter earnings per share (EPS) estimates by more than 50 percent. The company behind television hits such as Mad Men and Nurse Jackie said that a strong performance from its television and filmed entertainment library business lines drove fourth-quarter EPS to $0.33. The Street had forecast fourth-quarter EPS of $0.17. The firm also posted near-record international sales.

However, revenue for the quarter declined 6.2 percent to $376.9 million, falling short of analyst forecasts.

Strong fourth-quarter results weren’t enough to bring the production company into the black; it posted a $53.6 million loss for its 2011 fiscal year compared to a $19.5 million loss in 2010.

That disappointing performance follows a hard fought proxy battle for control of the company. Billionaire investor Carl Icahn sought to gain control of the company’s board and merge Lion’s gate with MGM Studios—a move he believed would unlock significant value based on the worth of the Lion’s Gate video library.

Icahn abandoned his bid in late 2010, but another deal for Lion’s Gate may be in the script.

Four consecutive years of losses have eroded the firm’s cash position while debt has remained high. A merger or takeover is still a distinct possibility.

Who’s Buying What

Smart Shopper. ENSCO (NYSE: ESV) shares jumped by more than 2 percent when analysts at UBS bumped the offshore contract driller’s rating to “buy” from “neutral.” UBS also raised its price target on the stock to $70 from $58 and the full-year 2012 earnings per share forecast to $6.10 from $5.00.

The company’s stock price had flagged as investors worried over the future of offshore drilling in the Gulf of Mexico following last year’s oil spill.

Additionally, London-based ENSCO’s proposed acquisition of Pride International—another major offshore drilling firm based in Houston—entailed a high degree of regulatory uncertainty. Investors employed arbitrage strategies to drive down the value of ENSCO’s stock.

But the recently completed acquisition makes ENSCO one of the world’s largest offshore contract drillers. Consequently, ENSCO’s shares should command a premium over those of its competitors, yet the stock remains undervalued, UBS said.

ENSCO now boasts one of the industry’s youngest deepwater fleets. The company’s geographic exposure has expanded to include Asia, the Middle East, Australia, Europe, Africa and North and South America.

The firm also has significant exposure to ultra-deepwater projects, which now represent half of ENSCO’s business.

Analysts say ENSCO should be able to boost earnings through cost cutting measures. Meanwhile, day rates and rig demand are rising, leading to significant upside potential for ENSCO’s shares.

The Checkup

Back on Track. In “Regulated Returns,” which appeared in our July 2010 issue, editor Benjamin Shepherd profiled two names that would benefit from the proposed financial reform legislation. Although the new law wasn’t as draconian as we initially anticipated, both stocks highlighted in the article have generated strong returns.

Advent Software’s (NSDQ: ADVS) shares have returned 26.6 percent since we profiled the company one year ago. The firm’s 2010 revenues rose by $24 million to $284 million and total earnings per share reached $0.52. This performance was driven by a boost in the firm’s international revenue, which grew by 1 percent on the year.

Advent offers a full suite of software solutions covering front-, middle- and back-office functions ranging from research management and compliance functions to order management and portfolio accounting.

Since Shepherd’s recommendation, an improving market environment and strong growth in the firm’s hedge fun business have bolstered Advent shares.

Advent’s acquisition of Black Diamond Performance Reporting has enhance Advent’s portfolio management and reporting platforms and brought along a sizable book of business.

Fiserv (NSDQ: FISV) shares have returned 34.8 percent since Shepherd profiled the company. Fiserv is a provider of productivity-enhancing solutions geared primarily toward small and midsize banks. It is also a leader in the US market for account and ACH processing, electronic bill payment and online banking platforms. The company’s business model of generating recurring, fee-based revenues proved resilient in the aftermath of the financial crisis.

Fiserv’s revenue plunged by more than $600 million in 2009. But it has been steadily retaking lost ground; revenue increased by $56 million in 2010, and earnings per share rose to $3.30 from $3.08 the previous year on the back of stronger margins.