DreamWorks Animation Stock Plunges; Hits 52-Week Low

DreamWorks Animation CEO Jeffrey Katzenberg
DreamWorks Animation CEO Jeffrey Katzenberg
 Courtesy of Dreamworks Animation

Shares of DreamWorks Animation tanked on Wednesday, down 12 percent after touching a new 52-week low as investors shed the stock en masse after the movie company posted poor quarterly earnings a day before and disclosed a regulatory investigation into a write-down taken about five months earlier.

The animation studio was also hit on Tuesday with multiple threats of class-action lawsuits, which is par for the course nowadays when a stock makes a dramatic plunge. Law firms on Wednesday were referring to the $13.5 million write-down that DreamWorks Animation took in February after its racing snail film, Turbo, disappointed.

The biggest catalyst driving the stock down on Wednesday, though, was probably the lousy quarterly earnings report from a day earlier, when DreamWorks Animation said it lost 18 cents per share when the average prediction of analysts suggested a loss of 2 cents per share. The company also fell short of revenue expectations.

CEO Jeffrey Katzenberg explained on Tuesday that the company hadn't yet benefited from How to Train Your Dragon 2, in part because it hasn't been released in China and other big international markets yet. Katzenberg expressed huge confidence not only in Dragon 2 but also the film industry on whole, even speaking of  "unprecedented opportunity" in 2015 and 2016, but investors and analysts weren't buying any of it on Wednesday, as the stock not only cratered but did so on massive volume.

By the end of trading, shares had dropped $2.68 to $19.98, but they had been down as low as $19.20, a 52-week low. Volume was 9.5 million shares compared to a daily average of less than 1 million.

On Wednesday, analyst Doug Creutz of Cowen & Co. chopped his fiscal full-year earnings-per-share estimate for DreamWorks Animation to negative 15 cents, more than twice the loss he previously predicted, and analysts at FBR Capital shaved $4 from their price target, now down to $20.

But Tony Wible of Janney Capital Markets sees opportunity after Wednesday's big fall given that he is bullish on Penguins of Madagascar, due for release in November.

"We expect DreamWorks Animation to follow its typical trading pattern of rising ahead of the release of a major film, especially with positive tracking and solid social media data points. Initial reception of the Penguins footage at Comic Con was strong," Wible wrote in a research note on Wednesday.

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