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.