Dreamworks Makes FBR's 'Top Picks' List On Netflix And Kung Fu Panda 3 Outlook

• Shares of Dreamworks Animation Skg Inc DWA have appreciated 26.41 percent over the past three months, from $20.07 on October 13.
• FBR’s Barton Crockett has upgraded the rating on the company to Outperform, with a price target of $29.
• Adding the stock to FBR’s Top Picks list, Crockett said that there were near term potential catalysts that could lead to upside to the stock valuation.

Analyst Barton Crockett believes that the catalysts included “potential for large checks from Netflix, Inc. NFLX for movie catalog rights and expanded TV production, and positive tracking for Kung Fu Panda 3 due out January 29.”

Although the terms of the TV deal with Netflix have not been disclosed, Crockett mentioned that Netflix would gain global first-run right for TV shows from Dreamworks Animation, across 180 countries, from the earlier 40 countries. The deal also gives Netflix second window rights for these TV shows.

“The contract appears supportive of our view that TV segment revenues can rise 50 percent in 2016 and argues for growth in 2017 and rising margins,” Crockett stated.

In addition, Netflix will obtain Dreamworks’ full film catalog, which Crockett estimates has more than 20 movies at present and would grow over time.

“We believe Netflix is paying a meaningful fraction of the free TV fees,” Crockett said, adding that the fees for the initial library was likely to be recognized immediately, potentially in 4Q15.

On the other hand, Kung Fu Panda 3 has been tracking stronger than both Inside Out and Transylvania 2 so far prior to opening, with “no meaningful new animated movies to compete with in February and a prime spot in Chinese theaters heading into Chinese New Year.”

The EPS estimate for 4Q15 has been raised from $0.03 to $1.04, following the Netflix deal, while the EPS estimate for 2016 had been lowered from $0.50 to $0.45.