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NEW YORK – Shares of DreamWorks Animation fell to their lowest level in two years on Tuesday as several Wall Street analysts called the opening weekend performance of the studio’s Kung Fu Panda sequel disappointing.
Early in the trading session, it went as low as $23.09. That was below a 52-week low of $24.38 hit last week and also marked the lowest price hit in about two years.
DWA shares last traded this low in May 2009. On May 13 of that year, the stock went as low as $23.12. A day earlier, it had even hit $22.51.
The stock later recovered a but to close down 3.7 percent at $23.91. The decline came as the broader market rallied after the long Memorial Day weekend in the U.S.
Shares of 3D technology firm RealD dropped even more sharply Tuesday, closing down 11.7 percent at $27.30, still well above their 52-week low of $15.63.
BTIG analyst Richard Greenfield on Tuesday reiterated his “sell” rating on DWA, cut his target price by $5 to $20 and reduced his financial expectations.
“The key drivers of DWA’s troubles are that its movies have not lived up to expectations and the global DVD market is in free fall as consumers continue to shift from buying to renting,” he said. He also pointed to an analyst day about 18 months ago, during which the company had outlined such growth opportunities as 3D, TV series, live entertainment (Broadway shows) and virtual worlds. “It has become increasingly clear that none of DWA’s growth opportunities are going to “bear the fruit” that management had hoped,” Greenfield argued.
Janney Montgomery Scott analyst Tony Wible, who has a “neutral” rating on DWA shares, called the Kung Fu Panda performance a “disappointment,” saying the $68 million box office take through Memorial Day fell short of his $75 million estimate. He suggested that the first-weekend data implies that Panda is on pace to generate $225 million in U.S. box office receipts, below his $245 estimate.
“The film grossed less than its predecessor (opened to $60.2 million) despite the 3D ticket premium, long weekend, and three years of ticket price inflation,” Wible highlighted. “This is the latest in a string of disappointments for DWA and is more troubling as Panda has been one of the company’s few remaining franchises, which may be showing signs of fatigue.”
Reiterating his “neutral” rating on the stock, Wible predicted that “recent film disappointments will overshadow longer-term benefits.”
Doug Creutz, analyst at Cowen & Co., said the film had “a very strong international opening,” but he still reduced his outlook for the film’s profitability and cut his 2011 earnings estimate for DWA. He said he continues to have a “neutral” rating on DWA shares.
“We believe that the soft domestic open further validates our concern that increased competition is hurting the domestic box office potential of individual animated films,” Creutz said. “Further, we note that Kung Fu Panda is the only franchise DWA has launched in the last five years that has shown any sort of international box office power, and thus we do not expect the international strength of Panda 2 to be repeated on a regular basis by DWA’s future releases.”
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