DreamWorks Animation Stock Surges a Day After Earnings

12:22 PM PST 10/30/2013 by Paul Bond
Paramount Pictures
"Rise of the Guardians"

UPDATED: The company beat projections with its earnings report Tuesday, and a day later analysts are weighing in on the achievement.

Shares of DreamWorks Animation surged 17 percent on Wednesday, a day after the company reported healthy quarterly earnings despite the disappointing box office generated by its racing-snail movie, Turbo.

The stock gained amid differing opinions from Wall Street analysts. Vasily Karasyov of Sterne Agee, for example, reiterated his "underperform" rating Wednesday while Tony Wible of Janney Capital Markets reiterated a "buy" ranking.

Wible was impressed that Rise of the Guardians, a movie that caused DWA to take an $87 million charge eight months ago due to a weak box-office performance, contributed $42.4 million to the third quarter because of pay TV. 

Other positives from DWA's earnings report Tuesday included revenue generated by The Croods and a dearth of competition next summer for How to Train Your Dragon 2, Wible told his clients in a Wednesday memo.

Wible also notes that DWA is confident that Turbo could turn a profit though DVD sales and other initiatives, and he suggests that the company may be collecting Turbo-related fees from an upcoming Netflix deal.

"The lack of a Turbo write-off may signal there is much more profit potential for future films," Wible wrote. "This could amplify profitability for Guardians given it already wrote off cost but yet is seeing much stronger DVD and pay TV revenue."

Wible says fair value for DWA stock is $39. Just prior to the closing bell, shares were up $4.83 to $32.65.

Karasyov, on the other hand, predicts the stock could fall to about $17 a share in the next 12 months. "We believe that the current stock price overlooks the fact that new revenue streams are not enough to offset the shrinking box-office opportunity for originals and that the company's earnings power is steadily deteriorating," he wrote in a note Wednesday.

He said that Turbo needs to bring in $46 million in consumer products if the movie is to be profitable, which would make it the second-highest-grossing film in that regard behind How to Train Your Dragon in 2010.

The "math is getting harder for Turbo," Karasyov wrote. "Consumer licensing revenue has to be very significant for the title to break even."

E-mail: Paul.Bond@THR.com

comments powered by Disqus