Analyst sees stocks benefiting from 3D

Wible: 3D could add $2.5 bil of home entertainment revenue

NEW YORK -- Cinemark and Regal Entertainment, DreamWorks Animation, Disney, Time Warner and Viacom will be among key sector stocks that will benefit from 3D product, Janney Montgomery Scott analyst Tony Wible said in an in-depth report Monday.

Beneficiaries among electronics retailers will include Best Buy and HHGregg.

"Manufacturers, retailers, theater operators and media companies are making big investments in 3D technology that will improve content, marketing and production/in-stock levels, ultimately accelerating the adoption rate of 3D technology," Wible said. "This spending increases our confidence in the success of this new technology."

The benefits for entertainment players will not be confined to the theatrical window as they "may soon start to spill over to home entertainment, cable networks and video games that look to harness the technology as a growth catalyst," the analyst said. "Ultimately, we believe home 3D could provide up to $2.5 billion of revenue for the languishing home entertainment window and could be leveraged to better position cable networks."

Cinemark, Disney, DWA and Regal are his favorite 3D investments, but he currently rates only Cinemark a "buy." The rest are "neutral"-rated due to company-specific challenges, he said.

DWA has the most 3D exposure given its commitment to producing all films in 3D. "DWA could be a compelling 3D investment, but we recommend investors revisit the name after its launch of 'How to Train Your Dragon' based on 3D screen bottlenecks and P&A risk heading into the film's release."

Disney will benefit as its film unit and media networks provide content "that ports well to 3D," such as sports and animation, the analyst argued.

Here some other highlights of Wible's report:

* He contended that part of the success of "Avatar" was based on consumers' "realization that this 3D experience cannot be replicated in the home."

* 3D works well for genres such as sports, animation, action, live events and horror. "However, 3D has yet to prove it can work for dramas, comedies and other genres," Wible said. Overall, he estimated that 3D has shown that it works for about 40% of the film market.

* "The potential dilution from theatrical 3D, limited (cable operator) bandwidth and the higher cost of production are material challenges" to the growth of 3D.

* 3D TV sets will drive traffic for specialty electronics stores, help differentiate them from mass merchants and the Internet and create excitement during the holiday season. "We just don't see Wal-Mart getting aggressive in 3D for many years to come, as WMT's core business in TVs is still in the sub-$500 range."