Shares of DreamWorks Animation (NASDAQ: DWA) fell to a new 52-week low on Friday, January 23rd following the company’s announcement to cut 500 jobs by the end of the year and to reduce the number of films it produces each year from three to two in an effort to improve profitability.
DreamWorks has been struggling to keep up with competitors since the end of its wildly successful Shrek franchise in 2007. The entertainment company recently took a significant hit when the latest sequel of its Madagascar franchise, Penguins of Madagascar, brought in a mere $36 million in domestic box office revenue over the five-day Thanksgiving holiday weekend in 2014.
DreamWorks Animation CEO Jeffrey Katzenberg reasoned the company’s lack of performance, saying they became too ambitious. He noted, “The number one priority for DreamWorks Animation’s core film business is to deliver consistent creative and financial success… I am confident that this strategic plan will deliver great films, better box office results, and growing profitability across our complementary businesses.”
DreamWorks Animation plans to take a $290 million pre-tax charge for its restructuring plan, expecting to save $30 million in 2015 and to grow to about $60 million by 2017.
On January 23rd, Janney analyst Tony Wible downgraded his rating on DreamWorks to Sell following the company’s restructuring announcement. He wrote, “DWA’s latest restructuring will stress earnings and introduce another layer of uncertainty as it is laying off 18 percent of its workforce, pushing out projects and taking $290 million of write-downs as it struggles with the lack of hits/profits in the film division.” He added, “The situation undermines growth for two years and will start to spark liquidity concerns that hurt equity value.”
Overall, Tony Wible has a 64% success rate recommending stocks and a +17.0% average return per recommendation.
Separately, Piper Jaffray analyst James Marsh upgraded his rating on DreamWorks to Overweight from Neutral with a price target of $26. He reasoned, “We are upgrading the shares of DWA following the announcement of a substantial restructuring today under the guidance of a new CFO. We think the move was necessary from a strategic standpoint, but also think it represents the ‘kitchen sink’ so future writedowns are unlikely.”
James Marsh currently has an overall success rate of 59% recommending stocks and a +33.4% average return per recommendation.
On average, the top analyst consensus for DreamWorks on TipRanks is Moderate Sell.