Published: May 24, 2010
Among the biggest losers in Monday's early
trading are Dreamworks Animation SKG (NYSE: DWA),
Popular (Nasdaq: BPOP) and New York & Co. (NYSE: NWY).
Disappointing Shrek Opening weighs on Dreamworks
Shares of Dreamworks Animation (NYSE: DWA) are off by
more than -11% after Shrek Forever After generated $71
million at the box office this weekend - below industry
forecasts of $85 million, and a weaker opening than the prior
two films in the franchise. Accounting for higher ticket prices
in place compared with the last version of the Shrek franchise,
actual attendance is more than 50% below the prior effort,
highlighting the fact that the animated series has likely run
Then again, we are going into the Memorial Day weekend, so
next weekend’s box office number should still look pretty good.
And Dreamworks’ still has an ample slate of animated films on
the docket including sequels to Kung Fu Panda,
Madagascar and How to Train Your Dragon. Puss ‘n
Boots, a character spin-off from the Shrek series, will get its
own feature film in 2011, setting up yet another franchise.
For investors in this entertainment company, there are two key
issues. First, the annual output of animated films is rising
from an average 2.5 films to three new films per year, which
could yield good operating
leverage, as long as those other franchises don’t show
audience fatigue too quickly. And will decisions by major movie
theatre chains to sharply boost prices kill traffic? That was a
key factor behind the steady sell-off at Carmike Cinemas (Nasdaq:
CKEC) before a
Right now, analysts think Dreamworks’ growth in earnings per
share is likely to stall out in the $2.50 to $2.90 range over
the next three years. After Monday’s sell-off, shares trade for
about 11 times the mid-point of that range. That’s a reasonable
price. Then again, this morning’s pullback puts the stock right
back in the $30 area, where it has traded for much of the last
Action to Take --> Shares
look intriguing as a very short-term play, as the Memorial Day
weekend box office receipts for Shrek Forever After could
provide some upside. But beyond that, a lack of near-term
catalysts makes this a stock to watch rather than buy.
Popular Spooks Investors
Shares of Popular (Nasdaq: BPOP), a Puerto Rico-based
bank that also serves the U.S. Hispanic market, are off -6% this
morning as investors wait for another shoe to drop. The bank
just issued a terse announcement that its president is no longer
with the company. Without any reasons given, investors must
assume the worst. In these instances, it is always prudent to
shoot first and ask questions later. Popular operates in the
heavily-regulated banking industry, and you can expect a high
degree of scrutiny from watchdogs after this morning’s
But the ink is still wet on a deal that will enable Popular to
market share in Puerto Rico. Early this month, Popular
assumed control of the assets of bankrupt Westernbank Puerto
Rico, which should boost its already dominant 27% market share
of the island’s banking activity closer to 40%.
So although this morning’s announcement is quite concerning,
shares are likely to represent real value –once the key
questions around the executive departure have been answered.
Action to Take -->
Wait to find out why the bank’s president was hastily removed.
If the impact does not appear to onerous, be prepared to pounce
on what is now a very cheap bank stock. But also know that
patience will be required, as the Puerto Rican economy is mired
in a slump that could last into 2011. This could be a great
long-term pick, with lots of short-term noise.
Selling Continues in Retailer New York & Co.
Shares of New York & Co. (NYSE: NWY) are off another
-2.5% on Monday, and have now fallen for five straight sessions.
In that time, the retailer’s stock has lost more than one-third
of its value. Management has been working to turn the ship
around by improving its website, and updating its product
styling while making sure that inventory wasn’t too lean -- a
long standing issue. Shares rose steadily in April on hopes that
quarterly results would strengthen, but last week’s tepid
earnings report dampened hopes.
Yet the quarterly report had some clear positives: same-store
sales grew +2.9% in the fiscal first quarter, the first positive
showing in six quarters; online sales grew +33% from a year ago;
and a planned increase in outlet stores should minimize the need
to heavily discount goods at its core stores. Moreover, shares
now trade at just 1.1 times tangible
book value and around 25% of sales. That’s quite low for a
Action to Take --> Shares
are likely to tread water at new lower levels, but
value-oriented investors are likely to start noticing this stock
on their screens. The
turnaround will take some time, and shares would double if
management hits its long-term targets. Shares have likely hit
bottom on Monday’s weakness, and though patience is required,
the (long-term) reward outweighs the risks.