Why DreamWorks Animation Skg Inc Shares May Fall Below $25

Does this analyst make a good case? Or from is it just more noise Wall Street?

Brian D. Pacampara, CFA
Brian D. Pacampara, CFA
Apr 25, 2014 at 2:30PM
Consumer Goods

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of DreamWorks Animation Skg Inc (NASDAQ:DWA) sank 4% today after Topeka Capital downgraded the animated-movie house from hold to sell.

So what: Along with the downgrade, analyst David Miller lowered his price target to $22 (from $27), representing about 22% worth of downside to yesterday's close. So, while contrarian traders might be attracted to DreamWorks' price slump in recent months, Miller's call could reflect a growing sense on Wall Street that its near-term risks are still being underestimated by investors.

Now what: According to Topeka, DreamWorks' Q1 results next week are likely to disappoint. "We believe there is a very good chance DWA may recognize a substantial writedown on its current theatrical release Mr. Peabody & Sherman to the tune of $34.5mm, or $0.26/share in after-tax effects," said Miller. "If we are right, then that would be 3 of the last 4 films which have resulted in writedowns for DWA." Of course, with DreamWorks shares still off about 25% from its 52-week highs and sporting a cheapish PEG of 0.50, those short-term concerns might be providing patient Fools with a juicy long-term opportunity.