DreamWorks Animation Downgrade

Stock analysts continue to believe DWA is in for rough sledding.

Zacks lowered shares of Dreamworks Animation Skg (NYSE:DWA) from a neutral rating to an underperform rating in a report released on Friday. Zacks currently has $20.00 price objective on the stock.

Zacks’ analyst wrote, “DreamWorks performed encouragingly in the third quarter of 2014 reporting higher-than-expected revenues as well as earnings. The company’s third-quarter 2014 earnings (excluding special items) of $0.10 per share handsomely beat the Zacks Consensus Estimate of $0.04. Higher-than-expected revenues led to the earnings beat. Despite such an impressive show, the company’s movie business is still battling high volatility. Mounting marketing costs, limited number of film releases, stiff competition from large production houses and overdependence on its Feature Film business continue to act as headwinds for the company. ...

The studio has the same challenges that it's owned from the beginning: When the bulk of your revenue is dependent on each film being a hit, and one or more films under-perform (as some invariably will), the stock will ricochet around a lot.

This is why Jeffrey is keen to sell DWA to a larger entity. DreamWorks won't have to live and die on it slate of films. But it's good that the company continues to diversify with more merchandising, television, and amusement parks. They're all smart moves to make, and it's good to be making them.