That’s the way it looks this morning: DreamWorks Animation shares are up more than 7%, and touched a 52-week high of $29.75, after Stifel Research’s Benjamin Mogil upgraded his recommendation to “buy” with a price target of $34. The morning’s stock move effectively added $171 million to DWA’s market value, now at more than $2.5 billion.
The upturn suggests that CEO Jeffrey Katzenberg’s making headway with his effort to persuade investors that the painful restructuring he announced in January — which included a $290 million charge and the loss of 500 jobs — will pay off. The share price fell 36.6% last year as DWA took writedowns for Penguins Of Madagascar, Mr. Peabody & Sherman, Turbo, and Rise Of The Guardians. Prior to Mogil’s shift, only two analysts urged people to buy the studio’s stock while three recommended that they hold, and five said to sell.
But DWA stock is up nearly 31% so far in 2015 — and Mogil says that in recent meetings he found execs “to be exceptionally candid about what had creatively gone astray over the last few years from the movie creativity front and how they have pivoted.”
DWA execs acknowledged that they bet wrong by making animated films for adolescents. “Where once it was common to see 10 year olds at animated movies, the age cap has been lowered in recent years,” Mogil says recounting the company’s view. DWA noticed the shift in 2011 when Kung Fu Panda 2 opened the same weekend as The Hangover Part II. The trend continued “right as the company’s slate moved older (i.e. darker).” The upcoming slate will move to “younger skewing, lighter and more comedic films.”
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Katzenberg has vowed to cut production costs, but marketing is a different story. “The challenge around the genre has and will be the need to market to two different audiences, kids and moms.”
Meanwhile, Mogil’s impressed with the growth opportunities in TV and consumer products. DWA’s producing shows for Netflix and overseas distributors including SingTel and Super RTL, as well as its online channels AwesomenessTV and DreamWorks TV. The TV output deals likelywill be extended “given strong critical ratings for the programming.
And DWA’s signing more licensed merchandise deals tied to TV characters as opposed to the movie ones. Indeed, “more than half of the revenue guidance came from non-feature film [properties], which we view positively in terms of the solidness/likelihood of attainability,” Mogil says.
The analyst now projects that DWA will lose 20 cents a share this year, vs his previous forecast for a 48 cent loss — and sees a $1.67 per share profit in 2016, up from $1.27. While he lowered his 2015 revenue forecast by 7.4% to $868.6 million, he raised his 2016 prediction by 3.3% to $1.26 billion.
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