Analyst Downbeat on DreamWorks Animation

Megamind is struggling and shares of DreamWorks Animation are about 17% overvalued, according to a research note Wednesday.

Richard Greenfield, an analyst with BTIG Research, initiated coverage of DWA with a “sell” recommendation and $28 price target. The stock fell 16 cents on the day to $33.62.

Among his concerns is that Megamind took in a lackluster $46 million on its opening weekend. When you take into account 3D premiums and adjust ticket prices for inflation, the audience for Megamind was one-third less than it was for Shark Tale during its opening weekend in 2004.
“And nobody viewed Shark Tale as a successful film,” Greenfield wrote in his report.
He predicts Megamind will peter out at about $160 million at the domestic boxoffice; Shark Tale finished with $160.9 million.
Greenfield figures Megamind is good for $350 million worldwide while Kung Fu Panda 2, set for May, will take in $650 million and Puss in Boots (November 2011) $425 million.
If he’s right, DWA will earn $1.90 per share in 2011, while the rest of Wall Street on average calls for a bullish $2.26 per share.
Greenfield also is bearish on DWA because of upcoming competition from every major studio: Disney/Pixar’s Cars 2, Disney’s Tangled and Winnie the Pooh, Paramount’s Rango, Fox's Rio, Warner Bros.' Happy Feet 2 in 3D and Yogi Bear and Sony's The Smurfs.
“And we would be shocked to not see Universal push a Despicable Me sequel as fast as they possibly can,” he wrote.
Greenfield also notes that “3D is not the industry’s savior” and that its popularity is being propped up by international audiences who will soon lose some interest.
And he reiterates industrywide concern that DVDs will continue to lose their luster with consumers.
“If DWA makes a great movie it will still sell, but content ranging from good to weak is simply not going to sell the way it used to,” he wrote.