Was DreamWorks Oversold After Earnings? (DWA)

DreamWorks Animation SKG, Inc. (NASDAQ: DWA) was hit pretty hard on Wednesday after earnings.  By the judge of it initially, the stock was sold off too much with a drop of 12%.  There is more to the story than yesterday’s price drop.

Weak sales of “Kung Fu Panda 2” DVDs acted as a drag on sales and only contributed $49.6 million in revenue during the quarter.  Home entertainment sales are called challenging and that the film came with a higher production cost  after marketing and distribution expenses.  The film also had higher payouts to the actors giving their voices.

The quarterly profit was $24.3 million or $0.29 per share, but that was down over 70% from a year ago.

DreamWorks is looking to expand its international presence and it recently signed a pact to enter China with a new Chinese production studio in Shanghai. There is also the end of the Paramount deal ahead, but we have not heard anything there on that front.

The reaction today has shares initially back up 3.5% at $17.86 after a double-digit loss.  The 52-week trading range is now $16.34 to $28.36.

Unless China is going to add massively to earnings next year, there is no compelling story here at about 17-times forward earnings and no dividend… unless those old buyout rumors start to resurface for a $1.5 billion market cap today.

JON C. OGG