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June 26, 2008
Dreamworks Estimates Begin To Rise
Dreamworks Animation (DWA) shares popped yesterday afternoon. I presume it was due to a report from Jessica Reif of Merrill Lynch which I received after the close. Jessica raised her 2Q08 and 2008 EPS estimates from below to above consensus on the basis of the strength in the Kung Fu Panda box office. She noted strength both in North America, where the film has had three full weekends, and international, where it has only opened in a few major markets.
Rising estimates is the first of several catalysts upon which my long position in DWA, established on June 9th, the Monday after Panda opened, is based. Look for more estimate increases next week, especially if Panda can hold its upcoming weekend-to-weekend box office decline to 40% or less against the opening of the extremely well-reviewed new film from Pixar/Disney, Wall-E....
....Future catalysts will include the 2Q and 3Q earnings calls which should have an optimistic tone, international box office receipts over the next month as Panda opens in major European markets, and the opening of Madagascar 2 in November.
I still believe the shares can move to $34-35 but the headwind from a poor market has been stiff. The shares have performed well on a relative basis since my initial purchase (I averaged down about 6% lower), unchanged against a 3% decline in the S&P 500. Hopefully, it won’t just be relative performance between now and November.
Posted by Steve Birenberg at June 26, 2008 08:48 AM in DWA
1. CETV HAD EXCELLENT NEWS WITH REGARD TO THE UKRAINE ,BUT THE STOCK IS DOWN MORE THAN $3. WITHOUT BAD NEWS,MICC IS DOWN MORE THAN $7.EXCEPT FOR FEAR OF OIL PRICES, THERE IS NO APPARENT CONNECTION BETWEEN FUNDAMENTALS AND STOCK PRICES.THE OVERALL MARKET APPEARS TO BE UNDERGOING ANOTHER LARGE DOWN TURN.SOME PUNDITS FEAR THAT WE HAVE NEVER COME OUT OF A SECULAR BEAR MARKET AND WILL GO BACK TO THE LOWS OF 2002.
2. THIS DOES NOT APPEAR TO ME TO BE THE NORMAL CORRECTION/BEAR MARKET SCENARIO.FUNDAMENTAL AND IMPORTANT CHANGES ARE PROBABLY NEEDED IN THE STOCK MARKET FUNCTIONING.ALSO,THE COUNTRY MUST ADDRESS THE ENERGY PROBLEM ON AN IMMEDIATE AND LONG TERM BASIS.
3. THE PREDICTED RALLY OF THE MARKET NEAR ELECTION TIME SEEMS TO BE IN DANGER.
Today's reversal just goes to show why you should not try to read something important into every move in either direction. On the S&P 500 we went right down to the lows for the year and then rallied sharply. We even went to those lows twice today. Who knows what will happen tomorrow or the next day but I say the action remains consistent with my trading range thesis and now is the time to be nibbling not panicking and selling.
Europe got abused overnight and emerging markets were exceptionally weak. This is what CETV and MICC take their cues from. The CETV news on Ukraine is nothing other than confirmation of a deal already announced which never faced any issues as to timing or closing. Thus it is not a market mover.
I do not believe we are going back to 2002 lows. I still believe a rally comes later this year around the election. I think most folks should stop paying attention to the pundits and just let the market play itself out. Nothing new has happened on this decline besides the spike in oil. The financial stocks are terrible but the news form them is no more challenging to the economy than it was a few months ago.
Everything you say is plausible but I still believe we are at the bottom of a trading range. I'd rather be a buyer here than a seller.
Posted by: Steve at July 1, 2008 03:05 PM