Pixar Going Out in Style

Another report, another blowout quarter for Pixar (NASDAQ:PIXR). Granted, calling the computer animation leader's fourth-quarter showing a blowout may be stretching the boundaries of poetic license. Earnings fell to $0.25 a share from $0.45 per share in the final quarter of 2004. Revenues were nearly halved, going from $108.9 million a year earlier to $55.6 million in the fourth quarter of 2005.

So why should Pixar shareholders be giddy? Well, analysts were expecting the company to earn just $0.18 a share on $45.4 million in revenues. Pixar blew those marks away. It can't help it. Along with making animated films, beating earnings is one of the two things that the California company does brilliantly well.

Aside from the second quarter in 2005, Pixar has made a habit of trouncing targets. If anything, beating the market's forecast by $0.07 per share would make the company a slacker by its own standards. A quarter earlier, Wall Street was waiting at the $0.11 mark, but Pixar produced profitability of $0.22 a share.

Let's put all of 2005 into jaw-dropping perspective. This was likely the company's last year as an independent entity, with Disney (NYSE:DIS) waiting to seal the acquisitive deal in a few months. It's also probably the last year that Pixar did not release a theatrical feature. The company is looking to have a new feature out every summer starting with June's debut of Cars. Yet in 2005, it still earned an impressive $1.24 a share on $289.1 million in revenues. Without a new movie in theaters, it was still able to cash in on the DVD release of The Incredibles and the perpetual popularity of its earlier releases to produce record results in 2005.

Pixar also happened to do so with a staggering 52.9% in net margins. Good luck trying to find another company where nearly $0.53 on every dollar in revenues makes its way to the bottom line. Those who've wondered whether Disney may be overpaying for Pixar might just eat some tasty crow when they see what Pixar's slick operations do to Disney's own studio margins.

As a Motley Fool Stock Advisor recommendation, Pixar has delivered to infinity and beyond. Since it was singled out in the summer of 2003, Pixar shares have risen by 88.9%. The S&P 500 has climbed just 27.8% in that time.

Pixar's valuation may seem rich to some, especially since the next two quarters are likely to come in a little light. Analysts expect earnings to dip for all of 2006, but that's almost immaterial at this point. We know how Pixar has a knack for blowing those targets away. More importantly, its trading is now practically locked into the eventual exchange rate that will grant 2.3 shares of Disney for every Pixar share outstanding.

This may be Pixar's last or next-to-last quarterly report as a stand-alone company. It's refreshing to know that Pixar is going out in its usual fashion -- on top.

Longtime Fool contributor Rick Munarriz is still a kid at heart, smitten by the right kind of animation. He owns shares in Disney and Pixar. The Fool has a disclosure policy. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.