Waking Up From Dreamworks (DWA)

The Stalwart submits: BusinessWeek looks at the problems surrounding Dreamworks Animation SKG Inc (DWA):

Weighed down by last year's less-than-spectacular film Wallace and Gromit: the Curse of the Were-Rabbit, the studio reported on May 2 that its first-quarter earnings had tumbled to $12.3 million, from $45.7 million a year earlier. Revenues fell to $60.1 million for the period, from $167.0 million the year before, when it was riding the hefty sales of DVDs from its blockbuster film Shrek 2.

Wall Street hasn't expected much from DreamWorks for much of the last year. The company first disappointed analysts a year ago when it misjudged the number of Shrek 2 DVD units it would sell -- and then missed its own optimistic assessment of how its film Madagascar would do last summer. All that has raised concerns among some financial analysts about its prospects, with the stock falling over the past year from $38 a share to $26. It dropped 75 cents, or 2.8%, on May 2 in anticipation of the earnings announcement after the market's close. In after-hours trading, shares recovered most of that decline.

Essentially, the problem with Dreamworks is that they've gone awhile without a hit -- though they've shown the ability to create monster (no pun intended) hits in the past. There's nothing structurally wrong with the company, and at a time when everyone is convinced that user-generated content and nichebusters are the way to go, there's a powerful contrarian case for a company with tons of cash, great brands and the ability to put together very expensive producer-generated movies.

They're sort of like a Pfizer (PFE), except nobody can see that they have a weak pipeline with little hope of a big blockbuster. They could have a huge breakout hit next year, or maybe the year after. There's no generic Shrek coming along in a few years either. We're not saying that Dreamworks is a good buy, but when you see analysts getting negative on a company, just because they haven't had a hit in a while, it may be worth being skeptical of the pessimism.