There may not be a whole lot of ogre green in DreamWorks Animation (NYSE: DWA) when Shrek Forever After opens this weekend.

The animation studio's stock took a 6% hit yesterday, after Thomas Weisel analyst Benjamin Mogil lowered his rating on DreamWorks Animation. He hosed down his price target from $44 to $38 in the process.

Mogil thinks the fourth -- and supposedly final -- installment in the Shrek franchise won't live up to its blockbuster predecessors. He originally called for the film to ring up $375 million in domestic ticket sales and $900 million worldwide, but he now sees Shrek Forever After taking in just $315 million in stateside box office receipts and $756 million globally.

Ogre and out
To handicap the projections, we may as well go over how the first three films in the franchise fared domestically.



Ticket Sales



$267.7 million

Shrek 2


$441.2 million

Shrek the Third


$322.7 million

Source: Box Office Mojo.

The first film took everyone by surprise and put DreamWorks Animation on the map. The sequel was a slam dunk. However, three years later, the third installment took a significant step back. And we're not even accounting for the inflation behind the perpetually climbing ticket prices.

This trend doesn't bode well for the fourth film. It also doesn't help that the movie will have plenty of competition. It may have a healthy first week or two, but June is loaded with kid-friendly releases, including Marmaduke, The Karate Kid, and Disney's (NYSE: DIS) Toy Story 3.

However, it's also important to explore the quality of the trilogy itself. According to Rotten Tomatoes, a site that compiles film reviews, Shrek and Shrek 2 won over 90% and 88% of the critics, respectively. Shrek the Third got a disappointing 41% approval rating. A poorly reviewed film in a hot franchise may open strong but fall off quickly as word of mouth gets around.

The early word on Shrek Forever After is only marginally better. Rotten Tomatoes has it at a 50% approval rate, but that's with just 14 critics checking in. Between the likely bad taste in the mouth of consumers after the third film and ho-hum buzz for this installment, it's easy to keep enthusiasm on a short leash.

Reasons to be bullish
I'm not as pessimistic.

Exhibitors recently raised ticket prices for 3-D and IMAX (Nasdaq: IMAX) screenings. Shrek Forever After should open well on both fronts.

This is also billed as the final film in the franchise, so it may win back the nostalgic patrons who enjoyed the first two flicks. The franchise's Puss in Boots character will get his own movie next year, and it remains to be seen what happens after that.

DreamWorks Animation has always made its release strategy clear. It wants three strong franchises, affording it the opportunity to release one strong sequel every year. It also is trying to put out at least one standalone flick every year, almost serving as a farm-club system for potential franchises.

The plan has worked so far. The Madagascar, Kung Fu Panda, and Shrek franchises are being milked annually on a rotational basis, and this year's success of How to Train Your Dragon has earned the film the 2013 sequel slot where Shrek used to be.

It's hard to bet against DreamWorks Animation. The company has beaten analyst profit estimates in 17 of the past 18 quarters.

It's also been at the forefront of the 3-D movement. There's a glut of 3-D content hitting multiplexes at the moment, but the studio committed early to IMAX 3D. Its Monsters vs. Aliens has been a promotional tie-in for Samsung's first 3-D HDTV, and this is only the beginning.

Disney, Sony, IMAX, and Discovery Communications have all committed to 3-D cable programming this year, improving the chances for the platform to succeed and for premium DreamWorks Animation offerings.

DreamWorks Animation is a force, and that's why box office speculation for a film that is presumably the last entry in a franchise is enough to rock the stock. The first three installments make up three of the five highest-grossing computer-rendered films, domestically.

The stock is trading at just 14 times this year's projected profitability. Nickelodeon parent Viacom (NYSE: VIA) is fetching just 13 times this fiscal year's bottom-line target, but there is greater opportunity -- and admittedly, uncertainty -- in DreamWorks Animation.

A strong close to Shrek's run will position the studio well for next year's Puss in Boots spinoff, potentially creating another major-league call up should one of the three continuing franchises falter.

In the meantime, I'll keep believing in DreamWorks Animation until it begins to merely meet Wall Street expectations.

Will you be checking out the new Shrek film over the weekend? Will you check it out in an IMAX, 3-D, or traditional screening? Share your thoughts in the 2-D comment box below.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.