Analyst upgrades Dreamworks shares

Shares increased to Buy from Hold after firm reports strong first quarter profit.
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Wedmush Morgan has upgraded the shares of Dreamworks Animation to 'Buy' from 'Hold'.

This comes on the back of impressive sales for its first quarter, with Wedbush stating it has become increasingly impressed with the company's ability to generate revenue from its older titles, helping to mitigate the volatility of the box office and home video performances.

Dreamworks reported net income of $26.1 million - or 28 cents a share - for Q1, against $15.4 million a year earlier. Revenue rose by 67 per cent to $156.6 million - nearly 17 per cent higher than Wedbush Morgan's estimates of $134 million.

The better than expected results came from Bee Movie and Shrek the Third, as well as ancilliary revenues tied to older properties.

Combined Bee Movie and Shrek the Third sales represented 62 per cent of revenue, generating $48.9 million and $48.3 million respectively. Older titles also contributed: the original Madagascar (released in 2005) earned $15.9 million (ten per cent) followed by $12.6 million (eight per cent) from Flushed Away (2006) and $8.1 million (five per cent) from Wallace & Gromit (2005).

Dreamworks also earned $18.7 million in library revenue. Wedbush Morgan is expecting quarterly library revenues to average over $28 million for the remainder of 2008.

Wedbush Morgan has now raised its 2008 and 2009 estimates. The firm is expecting 2008 revenues and EPS of $662 million and $1.66 respectively (versus $604 million and $1.58 previously). For 2009, the firm's estimates rise to $691 million and $1.84 from $640 million and $1.54.

Meanwhile, Dreamworks itself has confidence in its 2008 film slate, which includes Kung Fu Panda due in June.

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