Will Softbank Corp Acquire DreamWorks Animation?


DreamWorks Studios (NASDAQ: DWA) is a Universal City, California based American film production company, which produces and develops films, television programming, and video games.

DreamWorks In The News

On Saturday September 27th, it was revealed in publications, such as the Hollywood Reporter and Variety, that Softbank Corp has been in talks with DreamWorks Animation in an effort to acquire the entertainment company for a $3.4 billion bid, or $32 a share. However, since Monday the discussions have cooled down for reasons unsure. Senior executives have not formally considered the deal and it is unlikely to be finalized at this point in time.

DreamWorks has looked for a potential buyer of its animation studio in the past due to recent poor performance in the last few years. In an effort to come back from its losses, DreamWorks CEO Jeffrey Katzenberg put all the company’s focus in the television business, investing in the online video network Awesomeness TV.

A Financial Expert’s Opinion

On September 29th, Topeka Capital analyst David Miller maintained a Hold rating on DreamWorks with a $23 price target. He said in a research note, “Late Saturday, various trade publications, including Variety and The Hollywood Reporter, reported that DWA is in talks to sell itself to Softbank Corp, the Japanese multi-industry conglomerate run by Masayoshi Son. The proposed deal as it stands, assuming it’s in fact a firm offer, equates to $32/share. Given that DWA has not yet accepted any bid, and given our belief that this is a monopsony situation, we are maintaining our Hold rating and also maintaining our target at $23.00, as we do not believe there is any formal ‘bid’ as of yet.” Miller has rated DreamWorks a total of 15 times, earning a 50% success rate recommending the stock and a +8.4% average return per recommendation.

David Miller’s Past Recommendations

Miller has a history of rating stocks in the entertainment industry, such as Carmike Cinemas (CKEC) and Walt Disney Company (DIS), helping him earn an overall success rate of 67% in recommending stocks and a +14.0% average return per recommendation.

On July 24th of this year, Miller upgraded his rating for Carmike Cinemas from Hold to Buy with a $36 price target. He reasoned, “After seeing CKEC shares slip 9.2% since our negative ratings change 10 weeks ago, we are more than happy to take advantage of the lower price and upgrade CKEC back to a Buy rating. We believe the market is focusing right now on Q2 earnings, and not enough on the broader picture, particularly 2015, which looks truly spectacular, with four billion-dollar WW grossers a distinct possibility, those being Avengers 2, Hobbit 3, James Bond 24, and Star Wars 7.” Miller has rated Carmike Cinemas 6 times, earning an 80% success rate recommending the stock.

Similarly on May 5th, Miller upgraded his rating for Walt Disney Company from Hold to Buy and raised his price target from $78 to $91. He noted, “now is the time to get constructive…. With that, putting new money to work at a multiple of F2016 prospects, while not exactly super-juicy, is compelling enough for us to improve our rating.” Miller has rated Disney 7 times, earning a 100% success rate recommending the stock.

On the other hand, Miller has not always been so accurate with his financial advice. On June 10th of this year, Miller maintained a Buy rating on AMC Networks (AMCX) with an $87 price target. He explained, “With AMCX trading at an absurdly low 8.6x 2015 EBITDA on an EV basis, and a mere 12.7x consensus 2015 earnings, the latter an 8.7% discount to the S&P 500, we believe certain names within the large-cap Media set are eyeing AMCX as a possible acquisition candidate, especially in the wake of the two major MSO mergers that have been announced within the last four months. Such bulk in buyer power could create head-aches for the large-cap set in future rate card negotiations if there is not the same response in terms of supplier power.” Miller has rated AMC Networks 5 times, earning a 33% success rate recommending the stock.

Conclusion

Miller is a clear fan of entertainment industry stocks. But, can you trust his latest recommendation based on his financial advice history?