Published On: Mon, Jul 7th, 2014

Is the Nightmare Over for Dreamworks?

The company received an upgrade from a Piper Jaffray analyst from “Underperform” to “Neutral.”

Jeffrey Katzenberg

 

It has been a disappointing several months for Dreamworks Animation, since the tepid box office returns  in mid-June for the highly-anticipated release of How to Train your Dragon 2, but the stock and the underlying company may be waking up from its nightmare .

Prior to the less-than-stellar release of the dragon movie sequel, CEO Jeffrey Katzenberg stated his concerns about competition in the Dreamworks’ Q1 earnings call on April 29, 2014:

“In a marketplace with more competing entertainment options than never before, we need to adjust our marketing approach to ensure that all of our film releases stand out to audiences as must see theatrical experiences, ” said Katzenberg. He added that the increasing number of blockbusters has required to company to plan more strategically times for release.

In June, box office sales for the premiere weekend of How to Train Your Dragon 2 were far below the estimated $65 million, at just $50 million. Some believed the four-year gap between the first How to Train Your Dragon and its sequel might have been to blame for the less than enthusiastic reception.  The stock fell dramatically following the lackluster box office returns, dropping 12.2% in a single session. On his Mad Money program, Jim Cramer said of Dreamworks, “I can’t be optimistic. The company is performing poorly.”

How to Train your Dragon 2

However, since mid-June, things may be picking up for Dreamworks. The company received an upgrade from a Piper Jaffray analyst from “Underperform” to “Neutral, ” and a lifted price target for the stock from $19 to $22. The analyst thinks that Dreamworks’ recent disappointment with its dragon sequel might indicate that, in the short-term at least, the worst might be over for Dreamworks.

The company recently bought the rights to Felix the Cat, and Katzenberg is optimistic that a fashion line inspired by this classic character will capture the imagination of consumers; “We plan to make him one of the most desired fashion brands in the world, ” said the CEO.

Bulls may want to buy Dreamworks on conviction that the stock has upside potential, but it has risen already since the upgrade. The stock gained 3% on the upgrade on Monday, June 30,  to $23.49, and on July 3 traded at $23.77. Whether Felix is going to prove that Dreamworks has nine lives, or whether Piper Jaffray is right that the worst of the company’s nightmare is over are possible outcomes. Dreamworks bulls may want to buy the stock, but others may prefer to buy some popcorn, sit back and just watch the Dreamworks drama play out.

Jeffrey Katzenberg‘s father, Walter Katzenberg, was a stockbroker. His mother, Ann, was an artist. Jeffrey, who was born in New York City, graduated in 1969 from the Ethical Culture Fieldston School.

 

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