NEW YORK (TheStreet) -- Shares of DreamWorks Animation SKG (DWA) are surging, up 25.61% to $28.10 in pre-market trade, after it was reported that Hasbro (HAS) is in talks to acquire the film studio, potentially marking a big step into entertainment by the toy maker, sources told Bloomberg.
DreamWorks, led by Jeffrey Katzenberg, is asking for more than $30 a share, sources said, adding that the discussions are preliminary.
Dreamworks Animation, with a market value of about $1.9 billion, would deepen Hasbro's involvement in film and TV. The toy maker has a 40% stake in the Discovery Family Channel, previously called the Hub. Hasbro also has lent its products to films including "Transformers: Age of Extinction" the top-grossing film worldwide this year, Bloomberg noted.
DreamWorks has been diversifying into television, online video and theme parks to reduce its dependence on the hit-or-miss film business.
TheStreet Ratings team rates DREAMWORKS ANIMATION INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate DREAMWORKS ANIMATION INC (DWA) a HOLD. The primary factors that have impacted our rating are mixed some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow and a generally disappointing performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- DWA's revenue growth has slightly outpaced the industry average of 9.4%. Since the same quarter one year prior, revenues rose by 17.0%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- The current debt-to-equity ratio, 0.36, is low and is below the industry average, implying that there has been successful management of debt levels.
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Media industry average. The net income increased by 18.5% when compared to the same quarter one year prior, going from $10.06 million to $11.93 million.
- DWA's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 30.34%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- Net operating cash flow has significantly decreased to -$74.21 million or 246.24% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- You can view the full analysis from the report here: DWA Ratings Report