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UPDATE: Morgan Stanley Upgrades DreamWorks Animation (DWA) to Overweight; Risk Skewed to Upside, Says Analyst

November 26, 2014 8:16 AM EST
Get Alerts DWA Hot Sheet
Price: $40.97 --0%

Rating Summary:
    3 Buy, 6 Hold, 6 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 20 | Down: 14 | New: 22
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(Updated - November 26, 2014 9:21 AM EST)

Morgan Stanley upgraded DreamWorks Animation (NASDAQ: DWA) from Equalweight to Overweight with a price target of $27. Analyst Ryan Fiftal thinks its IP licensing opportunity is under-appreciated. Fiftal also sees de-risking in its cost structure, and he thinks valuation risk is skewed to the upside.

"Over the last 2-3 yrs, DWA has added 200+ heads as it has built up a global IP licensing / consumer products sales force to more broadly monetize its IP. Following raised SG&A guide, consensus reflects the full cost of the new licensing org but likely underestimates ROI. In 2015 TV revs and AwesomenessTV profits should also materially ramp-up," said Fiftal.

"Down 35% YTD, DWA’s price-implied EBITDA is now below our $275M-300M ‘steady-state’ EBITDA forecast. DWA trades at 8-9x this forward EBITDA (12-13x $1.80-$2.00 steady-state EPS), at the low-end of Media and below other studios-- LGF (not covered) at 12-13x EBITDA, Lucas-Film takeout at 10-12x fwd EBITDA. Multiple downside appears limited, as our SoTP indicates DWA’s core film studio (ex-TV/other) is valued at 7-8x, inexpensive in our view given rising global content demand and with the ever-present possibility of a sale creating optionality. The risk/reward is wide but looks skewed to the upside (+55% bull case, -
35% bear-case)," added the analyst.

For an analyst ratings summary and ratings history on DreamWorks Animation click here. For more ratings news on DreamWorks Animation click here.

Shares of DreamWorks Animation closed at $23.11 yesterday.



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