Dreamworks Animation SKG (DWA) announced a strategic production adjustment during its recent Q2 earnings call that the company expects to facilitate significant cost savings starting in 2010.
Company Description
DreamWorks Animation SKG develops and produces computer generated animated films in the United States. The company was founded in 1985 and has a market cap of $2.77 billion.
DreamWork’s share price has just about doubled in the last 4 months, helped by a recovering economy and the company’s strong second-quarter results, reported on July 28.
Second-Quarter Results
For the quarter, sales were down 7% from last year, but earnings came in much better than expected at 30 cents per share, easily outpacing the Zacks Consensus Estimate of 17 cents.
The company’s said that it has and will continue to benefit from lower advertising costs as networks battling for advertiser dollars have dropped their rates.
DreamWorks also added that it scored a one-time $24 million gain during the quarter on a video game deal with Activision Blizzard, Inc.
Strategic Adjustment
Moving forward, DreamWorks announced a strategic shift in its production schedule, saying it will now produce 5 new movies every 2 years instead of the previous 4. With roughly the same number of employees involved in the process, the company expects to save 10% on a per-movie cost basis by 2011.
Estimates
The analysts like what they saw, because the current-year estimate is up 13 cents in the last month to $1.62 per share. The next-year estimate is very bullish, up 9 cents in the same period to $2.24, a 38% growth projection.
Valuation Conversation
In spite of the big run up in shares, this stock doesn’t look excessively pricey, trading with a P/E of 19X, a slight premium to the market that looks reasonable in light of the bullish next-year projection.
The Chart
Shares of DWA are up big over the last 4 months after bottoming out just above $17 in early March. Since then, this stock has topped off at $31, close to a 100% return. Take a look at the chart below.
