Analysts WeighIn On DreamWorks Ahead Of 'Home' Release

DreamWorks Animation (NASDAQ: DWA) is slated to release its latest film, Home, in domestic theaters on Friday March 27th. Home will be the only film DreamWorks releases this year.

The animation studio has been struggling to keep up with competitors since the end of its wildly successful Shrek franchise in 2007. Four of the six latest films from Dreamworks Animation SKG Inc (NASDAQ:DWA) lost money and generated negative cash-flow since 2011. Most recently, the company took a significant hit when the latest sequel of its Madagascar franchise, Penguins of Madagascar, brought in a mere $36 million in domestic box office revenue over the five-day Thanksgiving holiday weekend in 2014.

Shares of DreamWorks recently fell to a new 52-week low on January 23rd following the company’s restructuring announcement to cut 500 jobs by the end of 2015 and reduce the number of films it produces each year from three to two. The company is moving forward with its restructuring plans in order to improve profitability and focus on quality over quantity.

There is no doubt that Wall Street is skeptical of the revenue potential for Home, especially since it’s the only film DreamWorks is releasing this year and the major competition it will face is from Walt Disney Company's (NYSE:DIS) Cinderella and Avengers: Age of Ultron. DreamWorks has forecasted the film to bring in roughly $35 million in the United States during its opening weekend.

Analysts weighed in on DreamWorks in anticipation of Home’s premiere.

On March 22nd, FBR Capital Markets analyst Barton Crockett maintained an Underperform rating on DreamWorks with a $14 price target, noting “A bull argument for DreamWorks is that consumer product licensing is seen doubling this year and growing after that. We would caution, however, that DWA has guided big before and failed to deliver.” He added, “The company has generated negative free cash flow since 2011, and we estimate it is on pace to do so again in 2015, with severance payments factored in…We see the company being hurt by rising competition from Disney, Universal, Time Warner, and Viacom. We believe investments in ramped-up licensing will not be sufficient to fully offset these pressures.
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Barton Crockett has rated DreamWorks 8 times since April 2009, earning a 20% success rate recommending the company, but also a +12.2% average return per recommendation. Overall, he has a 71% success rate recommending stocks and a +16.1% average return per recommendation.

Janney analyst Tony Wible, who currently has a Sell rating on DreamWorks, commented on the company’s newest film, noting “[Home] is a guaranteed write down if it does $100 million.” With that said, the analyst believes the film needs to generate roughly $120 million domestically to break even, which he thinks has a “50-50 chance.” With that said, Wible fears competition from Disney will most certainly be a factor in Home’s overall revenue potential.

Tony Wible has rated DreamWorks 15 times since December 2009, earning a 50% success rate recommending the stock and a +13.5% average return per recommendation. Overall, the analyst has a 72% success rate recommending stocks and a +19.2% average return per recommendation.

On average, the top analyst consensus for DreamWorks on TipRanks is Hold.

Disclosure: All recommendations for DreamWorks sourced from TipRanks.