If you’re reading this article, then there’s a pretty good chance that you’re either long or short DreamWorks Animation Skg Inc (NASDAQ:DWA). Approximately 40% of the float is short, which is an extremely high number. We’ll take a look at whether or not the shorts have a justifiable case.
Hits and misses
Dreamworks Animation Skg Inc (NASDAQ:DWA) has had its share of hits and misses. The biggest hits have been the Shrek, Madagascar, and Kung Fu Panda series, which are each $1 billion franchises. Building these types of franchises is the key to the company’s success. How To Train Your Dragon 2 could be the next big winner. The original was a hit in 2010, and How To Train Your Dragon 2 is set to be released in June, 2014. If the sequel is as successful as the original, then a third movie is likely.
Dreamworks Animation Skg Inc (NASDAQ:DWA) has also had some misses, the most recent being Turbo. This movie hasn’t been a disaster, but it hasn’t been a hit, either. According to Wikipedia.com, as of July 28, 2013, Turbo has grossed $55,768,000 in North America.
Turbo ticket sales have declined 36% in Week Two versus Week One, and the movie currently holds a RottenTomatoes.com score of 67%. Some analysts feel that poor marketing played a role in the movie’s underperformance.
It’s too late to use this tactic with Turbo, but you’re likely interested to know the movie’s ratings. Turbo currently holds a score of 67% on RottenTomatoes.com, 6.3 on IMDb.com, and 59% on Metacritic.com. These numbers are subpar. Therefore, don’t expect a sudden boost in Turbo’s performance at the box office.
Dreamworks Animation Skg Inc (NASDAQ:DWA) was founded in 1994 by Steven Spielberg, Jeffrey Katzenberg, and David Geffen in 1994. Since that time, DreamWorks Animation has released 27 movies. I averaged all 27 movie ratings at RottenTomatoes.com, and the average rating came out to 72%. Based on this average, it should come as no surprise that the studio’s stock has been inconsistent through the years.
Dreamworks Animation Skg Inc (NASDAQ:DWA) does have three films on the 50 Highest Grossing Movies of All Time list — all of the Shrek movies excluding the original. DreamWorks Animation also has 15 movies on the Highest Grossing Animated Movies of All Time list.
Diversification
Dreamworks Animation Skg Inc (NASDAQ:DWA) has increased its investment in television, which makes the company more diversified. This should lessen the pain when a movie fails. If DreamWorks Animation sees sustainable and significant revenue from television deals in the future, this could lead to more risk-taking on the movie side.
On the television side, Dreamworks Animation Skg Inc (NASDAQ:DWA) has some strong performers, including Monsters vs. Aliens, Dragons: Riders of Berk, and Kung Fu Panda: Legends of Awareness.
Other options
Dreamworks Animation Skg Inc (NASDAQ:DWA) has seen its stock depreciate approximately 20% over the past three years, while the broader market has experienced a massive bull run. Perhaps this is why there are more analysts with Sell ratings than Buy ratings on the company. DreamWorks Animation saw revenue increase in 2012, but income swung to a loss. The company’s debt management has been superb, which will allow for more opportunities in the future.
On average, analysts expect FY2013 EPS of $0.76 on $757.10 million. Both would be improvements over last year. However, Dreamworks Animation Skg Inc (NASDAQ:DWA) is trading at 26 times forward earnings, making it more expensive than peers.
If you’re looking to invest in a much larger and more diversified company that has seen consistent revenue and earnings growth annually, then consider Comcast Corporation (NASDAQ:CMCSA).
Comcast has seen growth in broadband, and NBC’s ratings have improved. Its Xfinity brand also offers on-demand movies and television shows. Xfinity has been attracting more visitors, but according to Alexa.com, time-on-site has declined 14% over the past three months. This will be a highly competitive arena, but Comcast Corporation (NASDAQ:CMCSA) is incredibly diversified, and any weak performing areas should be made up for in other areas. Another plus is that Comcast currently yields 1.80%.
On average, analysts expect FY2013 EPS of $2.42 on $64.36. Once again, both would be improvements over last year. Comcast Corporation (NASDAQ:CMCSA) is currently trading at 16 times forward earnings, making it fairly valued.
Viacom, Inc. (NASDAQ:VIAB) owns over 200 television channels, including MTV, VH1, CMT, BET, Nickelodeon, Comedy Central, TV Land, and Spike. Nickelodeon has been Viacom’s top performer, attracting massive audiences between the ages of two and 12. If you have a child, nephew, niece, or grandchild, then you have probably watched Nickelodeon recently. Though Nickelodeon’s programming might not be for you, there’s a good chance that your younger relative was fixated on the screen.
Analysts expect Viacom, Inc. (NASDAQ:VIAB) to see increases in digital licensing revenue and retransmission fees. Looking at the bigger picture, Viacom’s revenue declined last year. And on average, analysts expect a slight revenue decline for FY2013. On the other hand, the company’s earnings have improved for two consecutive years and analysts expect it to improve again, to $4.69, for the year. Viacom recently saw third-quarter net income jump 20%, and it increased its share buyback program to $20 billion from $10 billion.
The biggest threat to Dreamworks Animation Skg Inc (NASDAQ:DWA) is consecutive misses at the box office. For Comcast Corporation (NASDAQ:CMCSA) and Viacom, Inc. (NASDAQ:VIAB), a decline in the advertising market is the biggest threat. If the economy sours, advertisers will back off quickly.
Conclusion
Whether or not the shorts are correct on Dreamworks Animation Skg Inc (NASDAQ:DWA) is debatable. Ironically, since the stock is so volatile over the long haul based on content performance, both longs and shorts will eventually be correct at various points. It simply depends on the timing.
Viacom, Inc. (NASDAQ:VIAB) is a well-run company that owns some of the largest and most popular television brands in the world. This stock should be a quality long-term investment.
Comcast Corporation (NASDAQ:CMCSA) is the most diversified and consistent company of the three. This stock is likely to offer the best long-term return.
Dan Moskowitz has no position in any stocks mentioned. The Motley Fool recommends DreamWorks Animation.
The article Is This an Investor’s Dream Stock? originally appeared on Fool.com.
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