Judith Martin, The Investment U Research Team
For less than the cost of just one mango margarita – I won’t get into the cost of the popcorn – you could be in an air-conditioned theater with friends or family for the matinee showing of a summer blockbuster.
Like many looking to get away from it all, I’ve been spending most of my summer Sundays at the movies. Too often, as I stroll in late, I find the theater is already packed.
It’s not surprising. Entertainment often does well in economic downturns, leading many to call it “recession proof.” More correct, would be to call it “recession resistant.”
The fact is, there are a number of movies and movie companies that are raking in the dough right now. And there’s no company profiting more from my seat-finding stress this summer than DreamWorks Animation (Nasdaq: ).
Wait… doesn’t DreamWorks make kids movies?
Summer Blockbusters Are Only the Start
You may be surprised to hear that DreamWorks Animation is pumping out much more than just the kid friendly 3-D hit Monsters vs. Aliens this summer.
The company is “helping out” their competitors by co-producing (and sharing profits from) six other studios’ summer blockbusters, including Paramount’s Transformers: Revenge of the Fallen and The Uninvited in addition to Montecito Pictures’ I Love You Man.
These arrangements have enabled DreamWorks to reduce its risk, even as it increased profits.
So while it’s no wonder that while the global media industry experienced revenue growth at an average rate of only 3% over the last year, DreamWorks’ revenues have shot through the roof at a rate of nearly 68%.
Ranked one of Fortune magazine’s “100 Best Companies to Work For in 2009,” DreamWorks attracts the best employees in the business. Though small in number (just over 1,700), these men and women have certainly been working hard.
It shows. With this year’s ramped up production, DreamWorks has more than doubled its net income compared to this time last year.
And the company is just warming up.
DreamWorks is looking at a packed schedule for 2010, with seven co-productions in the works (including the Angelina Jolie thriller, Salt) and three of the studio’s own animated films poised for release.
The company has been hard at work building promotional alliances with McDonald’s (NYSE: ), Intel (Nasdaq: ), and Hewlett-Packard (NYSE: ); partnering with Activision Blizzard (Nasdaq: ) to develop video games, designing party favors and greeting cards with Hallmark, and collaborating with several other companies to produce toys, mobile phone games, costumes and accessories based on DreamWorks characters.
Not to mention a DreamWorks theme park, character based restaurants, hotels and other tourist attractions scheduled for construction in Dubai.
Of course, with a gross profit margin of 40.9%, this will leave a pile of earnings for DreamWorks’ investors. Analysts expect earnings per share to rise 35% by the end of 2010.
If this seems a little low, it probably is. DreamWorks loves to outperform analyst expectations.
The company has not only beaten EPS estimates by over 20% each quarter in the past year, DreamWorks stunned investors by overshooting investors’ March EPS projection by 46%!
So sit back and enjoy the show, shareholders. With an investment in DreamWorks, you’ll even be able to afford the popcorn.
Good investing,
Judith Martin
