DreamWorks Animation SKG Inc.'s shares jumped Wednesday following an analyst upgrade of the entertainment company's stock.
THE SPARK: Stifel analyst Benjamin Mogil upgraded his rating on DreamWorks to "Hold" from "Sell", saying that the company's write-downs and other negative factors are behind it and an upcoming film may prove more popular than initially anticipated.
THE BIG PICTURE: Last month, DreamWorks posted a fourth-quarter loss of $82.7 million, citing major write-offs tied to "Rise of the Guardians", as well as costs for job cuts and an upcoming movie that needs to be reworked.
The company had an $87 million write-down on "Guardians," a $54 million charge for sending the film "Me & My Shadow" back into development and a $20 million charge for other projects in development and $4.6 million in restructuring expenses. Much of the other charges related to "Shadow" and restructuring were due to the layoff of 350 people, many of whom are associated with the film and will leave over the course of the year.
DreamWorks said "Guardians" may have been too dark for the studio's normal family audience and that "Shadow" is very complex, so the company needed time to get it right.
THE ANALYSIS: Stifel analyst Mogil said that while he continues to see the stock as expensive, the company's major negative catalysts are behind it.
Mogil had held off on a rating change until he had better understanding on tracking for the company's new "Croods" movie. He said signs are pointing to the movie performing well, which could be a revenue driver for the company.
The analyst also pointed to lower expenses and an increase in future production budgets as a positive. .
SHARE ACTION: Shares added $1.24, or 7 percent, to $18.92 in afternoon trading. Its stock has traded in a 52-week range of $15.90 to $22.98.
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