DreamWorks – Better in the Box Office Than Your Portfolio

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The year 2014 has not been kind to DreamWorks Animation(DWA).  DreamWorks stock is down nearly 40% year-to-date.

DreamWorks Animation DWA 185However, now that DreamWorks has revealed that the box office hit How to Train Your Dragon 2 boosted third-quarter earnings, is DWA making a comeback? Is it time to buy on the dip?

DreamWorks – Company Profile

DreamWorks Animation is an entertainment company that specializes in computer generated animated feature films, television specials and series, as well as live entertainment properties. All of DreamWork’s feature films are produced in 3D.

To date, DreamWorks has released 27 animated feature films, including How to Train Your DragonShrek and Madagascar. DreamWorks brought in $706.9 million in 2013 and is expected to see $735.6 million in revenue for 2014.

DreamWorks – Earnings Rundown

In the third quarter DreamWorks reported improved net income of $11.9 million, or 14 cents per share, compared with a profit of $10.1 million, or 12 cents per share, in the same quarter last year, which trounced analysts’ earnings estimates of 5 cents per share.

At the same time, revenue for the third quarter was $180.9 million, missing the $182.7 million consensus estimate. Last quarter, DreamWorks’ major hit was How to Train Your Dragon 2, which brought in whopping $615 million worldwide in box office sales. How to Train Your Dragon 2 contributed $74.2 million to third-quarter earnings. In the fourth quarter, DreamWorks hopes to receive the same boost from its next major movie, Penguins of Madagascar.

However, the analyst community isn’t buying it. Following DreamWorks’ earnings report last week, the consensus earnings estimate fell from 37 cents per share to 33 cents per share. Therefore, DreamWorks is headed for a 13.2% year-on-year drop in earnings for the fourth quarter.

DreamWorks – Current Ratings

Despite having a strong third quarter, DreamWorks has been on the decline since the summer, which can be attributed to dismal buying pressure. DreamWorks stock receives a “F” for its Quantitative Grade.

DreamWorks doesn’t fare much better in fundamental metrics either, earning failing grades in sales growth, earnings growth, earnings momentum, and analyst earnings revisions. DreamWorks’ cash flow, return on equity, and operating margin growth needs serious improvement as well.

Earnings surprises is the only area where DreamWorks’ fundamentals shine, earning an “A” grade. Overall, DreamWorks earns a “D” for its Fundamental Grade. I consider DreamWorks a “F-rated sell.”

Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip GrowthEmerging GrowthUltimate GrowthFamily Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.


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