Several of Northlake’s long positions report this week beginning tonight with Dreamworks Animation (DWA). DWA has been very weak as the collapse in DVD sales has crushed estimates and compacted long-term valuation. However, the stock may be a good setup for a rebound. Getting past the earnings report could allow investors to look forward where the outlook is more hopeful.
Consensus is for 60 cents in EPS on $232 in revenue. DWA’s earnings are tough to predict due to limited revenue streams against mismatched timing of expenses. The revenue number looks a little high to me while the EPS number seems OK even on lower revenues. EPS estimates were 83 cents when the company last reported which tells me bias on tonight’s report should be for below consensus.
The optimistic case looking ahead is that the company has a movie coming on March 27th, Monsters vs. Aliens, profitable DVD sales on that film and Madagascar 2 later this year, and three films to be released in 2010 including Shrek 4. DWA shares usually perform better in anticipation of movies than in reaction to movies.
The trade is that we are moving into an anticipation period with the stock and estimates reflecting a lot of bad news and negative sentiment.