DreamWorks Animation Shares Decline After Analysts' Comments

Cowen analyst Doug Creutz downgraded the stock to "neutral," arguing that "the box office potential for animated films declined meaningfully during 2010."

NEW YORK -- Shares of DreamWorks Animation declined Tuesday and came near their 52-week low amid a broader market decline and bearish reports from two analysts.

Cowen analyst Doug Creutz downgraded shares of DreamWorks Animation from "outperform" to "neutral," arguing that "the box office potential for animated films declined meaningfully during 2010."

He and Goldman Sachs analyst Ingrid Chung reduced their financial expectations for the company ahead of its quarterly earnings later this week, citing a weaker-than-expected performance of film release Megamind.

Chung cut her Megamind worldwide theatrical estimate from $385 million to $318 million and reduced her target price on the stock from $35 to $27.

DWA shares fell as low as $27.51 in early trading, close to the stock's 52-week low of $26.61 that it established last summer, before closing down 2.3 percent at $28.

Creutz, based on an analysis of animated film performance and films' quality over the past 10 years, argued that four of last year's big five original animated film releases underperformed.

DWA's How to Train Your Dragon and Megamind underperformed as did other studios' fare, such as Tangled and Legend of the Guardians, while Universal's Despicable Me "was a notable exception," he said.

"Although we believe sentiment around DWA shares is fairly negative, we no longer believe there is enough upside to valuation to justify a continued "outperform" rating," Creutz said. "We expect shares to trade in-line with the market over the next twelve months."

Chung lowered her DWA financial estimates on DVD weakness and her expectation of a Megamind write-off. "Fourth-quarter 2010 events that we anticipated to be "noisy," Megamind box office and DVD sales, turned out to be worse than we expected," she said.

Chung did suggest though that the release of Kung Fu Panda 2 on May 27 could potentially turn around sentiment on the stock.