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| 'Madagascar' has the Making of a Hit | 24/03/05, 7:23pm EST
| Wall Street analysts expect DreamWorks Animation SKG to score a hit with its upcoming film Madagascar
but remain split on whether the animated feature will bring in enough
at the box office to drive a revaluation of the studio's shares.
Shares in DreamWorks have risen 40 percent since its Oct. 27
public offering, but the studio trades at less than half the earnings
multiple of rival Pixar Animation Studios Inc on the view that it has
not established the same record as a reliable hit-maker.
DreamWorks on Wednesday was trading at a ratio of 21 times forecast 2005 earnings, compared with Pixar's 48.
But some analysts said that skew in studio valuations could start to change if Madagascar
surprises Hollywood watchers by taking in more than $175 million to
$200 million at theaters after it opens on a holiday weekend in May.
DreamWorks Chief Executive Jeffrey Katzenberg told analysts
last week that the film had performed better than the studio's monster
hit Shrek with test audiences in California.
Katzenberg cautioned that predicting box office performance was tricky,
but analysts have said the film has a clear shot at a strong opening
with no other major family offering debuting within three weeks after Madagascar, and no animated film until Howl's Moving Castle arrives on June 10.
Star Wars III: Revenge of the Sith, which opens a week earlier than Madagascar, appears to be the only direct competitor for young children going into the summer movie season.
A win with Madagascar
would go far in changing analysts' view of DreamWorks as a "creatively
volatile company," and could justify a target share price of $45
compared to Tuesday's close of $39.80, Fulcrum Global Partners analyst
Rich Greenfield said.
Greenfield estimated the film's domestic box office take at
$200 million and $240 million at the international box office, putting
it in league with Spider-Man and The Lion King.
Lehman Brothers analyst Anthony DiClemente raised first-quarter
earnings estimates for DreamWorks based partly on expectations for Madagascar.
In a note to clients, DiClemente said he expected the film to capture
$175 million at U.S. box offices and left open the possibility that his
estimate could be "conservative," based on "generally positive
commentary regarding Madagascar.
But Sanders Morris Harris analyst David Miller cautioned that Fox's Robots
had fallen short of some expectations despite the lack of competition
from other family films at its debut earlier this month. DreamWorks, he
said, needed a Shrek-sized hit to rise above the fray in 2006.
Analysts agree that Glendale, California-based DreamWorks faces tougher
competition in 2006 from at least eight major animated features due out
from rival studios.
I have no doubt ('Madagascar') will be a solid performer. What's built into the stock is that it does better than stellar, Miller said.
Madagascar
features voice performances by Ben Stiller, Chris Rock, David Schwimmer
and Jada Pinkett Smith as four animals who escape from a New York zoo
and are sent to the wilds of Madagascar, where they go into culture
shock.
Source: Reuters
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