DreamWorks shares fly on profit report and Goldman ‘buy’


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DreamWorks Animation‘s strong first-quarter earnings report is getting rave reviews on Wall Street today: The company’s shares have soared 25%, and brokerage Goldman Sachs moved the stock back to its ‘buy’ list.

DreamWorks late Tuesday said earnings last quarter more than doubled, to $62.3 million, or 71 cents a share, far exceeding analysts’ mean estimate of 45 cents.


As my colleague Richard Verrier notes in this story, the Glendale studio benefited from strong box-office and DVD sales from its ‘Madagascar: Escape 2 Africa’ sequel -- exactly as CEO Jeffrey Katzenberg had predicted in late February, when the company otherwise disappointed Wall Street by reporting a 45% drop in fourth-quarter earnings.

Today, the stock was up $4.78 to $23.85 at about 10:40 a.m. PDT, in heavy trading. That’s still well off the 52-week high of $32.57, reached in August.

Goldman upgraded the stock to ‘buy’ from ‘neutral’ today and lifted its price target to $27.

Although Dreamworks isn’t likely to generate much big news in the next few months, Goldman said, it expects the stock to gain ahead of ‘positive catalysts’ in the fourth quarter and in 2010, including revenue from airings of ‘at least two new TV specials’ in the fourth quarter, anticipation of three films in 2010 (including ‘Shrek Goes Fourth’) and the potential for a ‘Penguins of Madagascar’ TV series DVD for sale later this year or early in 2010.

Goldman expects the company to earn $1.50 a share this year and $2.18 in 2010. Based on the current share price, the stock’s price-to-earnings multiple on the 2010 estimate is about 11, which Goldman figures is an ‘attractive’ valuation.

The brokerage also trotted out the perennial idea that DreamWorks could be a takeover candidate for a bigger studio.


-- Tom Petruno