Dreamworks Animation Shares Could See A Lift From 'Rise Of The Guardians'

| About: Dreamworks Animation (DWA)

Here is an investing idea for the short trading week of Thanksgiving. Buy shares in the company that could see a huge impact from families going to the movies this week. While some teenagers will go see "Breaking Dawn Part 2" and adults will go see "Skyfall," families with kids will be going to see "Rise of the Guardians," the latest movie from Dreamworks Animation (NASDAQ:DWA).

"Rise of the Guardians" is based on a children's book by William Joyce. The story centers around Santa Claus, the Easter Bunny, Jack Frost and the Tooth Fairy teaming up to fight evil away from children. Dreamworks is hoping it has a potential sleeper on its hands that it can turn into many sequels and spin-offs.

"Rise of the Guardians" opens against two newcomer movies this week as well. On Wednesday November 21st, Rise will open against "Red Dawn" and "Life of Pi." "Red Dawn" will be shown on 2600 screens, will not compete against the same target audience as Rise, since it is geared at adults. "Life of Pi," which will be shown on 2700 screens, is rated PG and could fight for some of the family box office. The movie's previews don't look very kid oriented to me, based on weirdness and thematic elements. Rise will have the benefit of opening on 3500 screens, but faces competition from existing blockbusters "Breaking Dawn Part 2" and "Skyfall." (Screen Counts from Box Office Mojo.)

I think Rise could be the sleeper hit of the holiday season. The movie sees several marketable characters together in the same movie. Combining childhood heroes in a sort of Avengers style could create a hit for Dreamworks. If you look further ahead to Christmas, there are no big animated or family releases the rest of 2012. Strong reviews or word of mouth could keep this movie in theaters for a long time and bring in large amounts of box office revenue, with the added bonus of 3-D sales as well.

Family movies released around Thanksgiving are usually gold for movie studios as the extended week sees kids have no school, and many adults have extra time off of work. Last year, the family movie "Arthur Christmas" released around the same time only grossed $46 million in North America, and represented a flop for the holidays. The top three Thanksgiving week opening movies of all time are "Toy Story," "Tangled" and "Enchanted."

"Rise of the Guardians" already opened in China, where it made $3.1 million this past weekend. The movie expands into eight countries, including the United States and Russia, this week. The movie will also be released in select domestic and international IMAX (NYSE:IMAX) theaters. The movie will appear on a total of 20 IMAX screens in North America in 14 states and 2 provinces.

Throughout 2012, I have also pointed out other key reasons shares of Dreamworks Animation could rise:

1. Theme Park Plans - New indoor theme park coming at American Dream Mall in New Jersey. This park could be the sign of things to come, as Dreamworks could expand to other theme parks utilizing characters from its library of movies.

2. Acquisition of Classic Media - Dreamworks bought the library of Classic Media for around $150 million. The acquisition gives Dreamworks over a hundred characters that can be licensed out on merchandise and also used for movies. The company had previously announced that they were making a movie based on Classic Media characters Mr. Peabody and Sherman.

3. Move into Television - Company CEO Jeffrey Katzenberg hinted at creating a television channel to showcase Dreamworks characters. The company has shows based on "Kung Fu Panda" and "Madagascar" on Nickelodeon. The company also created a show called "Dragons, Riders of the Berk" that airs on Cartoon Network.

Another reason to begin accumulating shares of Dreamworks is a potential buyout. On its own, Dreamworks shares look enticing. However, with consolidation in the movie industry, including Disney's purchase of Lucasfilm, Dreamworks looks attractive with a $1.66 billion market capitalization. The studio's key characters and brands would fit well with a studio that needs a family or kids division.

Analysts see the company reporting $0.38 in earnings per share for the current December quarter. Analysts were pleasantly surprised when the company reported $0.29 in the September quarter, after forecasting $0.11. The company has earned $0.57 in the first three quarters. Analysts previously saw the company earning $0.93 for the fiscal year, before jumping to $1.06 in the next year.

Shares of Dreamworks are trading at $19.64, still towards the middle of their fifty two week range. The company has a fifty two week range of $16.34 to $22.98. Shares are up 17% in 2012, but still remain down 38% in the last two years. Hitting $25 or $30 by the end of the year is not out of the question. The studio's diversification away from movies should be recognized by investors and should increase earnings per share targets for the future. The company also moves to a more aggressive three or four movies every year pattern beginning in 2013.

Disclosure: I am long IMAX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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