What 'Home' Could Mean For DreamWorks

March 23, 2015

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In a report published Monday, FBR Capital Markets analysts maintained an Underperform rating on DreamWorks Animation SKG, Inc (NYSE: DWA) with a price target of $14, while discussing the domestic and international prospects of Home, its latest 3D computer-animated comedy film.

The estimate for Home’s domestic run total has been raised from $20M to $140M, following Box Office Analyst editor Doug Stone’s latest newsletter cited “improving interest” in the movie. The estimate for the opening of Home this week now stands at $36.4M, representing 26% of the total domestic run.

The international box office estimate is at $297M, adding a modest $9M to the profit estimate. Although Home’s opening in the UK this weekend, at $9.3M, is 13% higher than Croods, the analysts do not expect the initial outperformance to hold “over time—and in other markets—given weaker reviews.”

In the report FBR Capital Markets noted, “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.”

“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.” Of its last six movies, four have lost money. Moreover, DreamWorks Animation is likely to witness stiff competition in CP licensing from upcoming Star Wars, Avengers, Minions, Jurassic Park, Sponge Bob and Monster Trucks.

The company’s film performance has been patchy. The latest entries in its key franchises, like Madagascar, Kung Fu Panda and How to Train Your Dragon, have also not added to the excitement.

“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,” the analysts added.