Morgan Stanley: Dreamworks Animation Liquidity Fears 'Appear Overdone'

Ryan Fiftal of Morgan Stanley commented in a note on Tuesday that DreamWorks Animation Skg Inc's DWA has “more than ample” liquidity and that fears “appear overdone” and “should subside.”

According to Fiftal, DreamWorks Animation's $250 million remaining revolver capacity is sufficient to fund 2015's “heightened cash burn” and also be sufficient if the studio's next film, "Home", underperforms. Moreover, the analyst believes that if part or all of the studio's 2016 slate also misses expectations, the company has an additional $400 million of financial capacity to tap by borrowing against its assets and further selling its stake in AwesomenessTV.

“If DreamWorks' upcoming releases underperform our expectations there could be considerable further cash drag, though we believe DreamWorks' other sources of capital would likely be sufficient to fund operations,” Fiftal wrote.

Fiftal also suggests that if the company's Netflix, Inc. NFLX TV output deal is not renewed, a sensitivity analyst suggests the company can still fund its operations.

However, if the company is forced to raise its financial leverage (on top of a business model with higher operating leverage) this will make the equity “more risky.”

Looking forward, the company will host its first Analyst Day since 2009 during the spring (date TBD).

Shares are Overweight rated with a $23 price target.