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Dreamworks Animation SKG (DWA) reported earnings that outpaced analysts' estimates despite not having a major domestic theater release during the first quarter. Well, technically, “Monsters Vs. Aliens” was released in the last week of the quarter, but very little of that was reflected in this quarter. The studio’s strategy of focusing on family-friendly movies appears to have paid off in the last quarter as DVD sales of “Madagascar: Escape 2 Africa” were very strong, as was the film’s international release. Of the company’s $263 million in revenue for the quarter, $148 million was contributed from the second installment of the wildly successful Madagascar franchise.

Analysts were expecting the company to bring in $212 million in revenue and earnings of 45 cents per share. Both totals beat the street’s view with revenue of $263 million (68% growth)DWA and earnings of 71 cents per share. As if the earnings and revenue growth was not impressive enough, the company also improved on gross margins up to 40.6% from 38.6%.

Year to date the stock was down about 25%, but it got a nice bounce in after hours trading since reporting the impressive results from the first quarter. We initiated our Undervalued stance on DWA back in early March. The shares rallied nearly 15% afterhours, but there could still be legs as Dreamworks seems to have kept the momentum going with a strong start from “Monsters Vs Aliens”. The studio's first 3D movie brought in more than $58 million in its opening weekend, and reports are that the movie has grossed about $320 million already in the young quarter. Dreamworks seems to have found a perfect niche in the film industry with animated movies that the kids love and entertainment parents can afford, and branching out to 3D and IMAX (IMAX) is keeping their product fresh.

“Recession proof, that people are looking for cheaper alternative to entertainment and the resurgence of 3d. “monsters versus ailions” the DREAMWORKS picture took $58.2 million in the opening.” Fox Business Network 4/1/2009

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Source: Dreamworks: A Storybook Quarter