With Shrek I, II, III -- and around the corner, IV -- it would be nearly impossible NOT to have heard of this animated film franchise. It is one reason why DreamWorks Animation SKG (NYSE: DWA) is soaring. This animation film company was spun off from DreamWorks Pictures, the brainchild of Hollywood power trio, Steven Spielberg, Jeffrey Katzenberg, and David Geffen. The animation studio, which went public is 2004, creates family entertainment made through CGI (computer generated animation), and is responsible not just for the Shrek franchise, but for many hit films like Chicken Run, Madagascar, Shark Tale, and Over the Hedge, among others. It is now dedicated to releasing two CGI animated films a year, which is an impressive number given the time and money it takes to create this type of movie.
Some investors thought that the third time around, people would get pretty sick of the big green giant, inspired by William Steig's brilliant children's book. But they seem to be wrong. A recent Goldman Sachs report raises its previous second quarter, 2007 and 2008 estimates because, as it notes, "Shrek III is performing better than we had expected in both the domestic and international markets at the theatrical box office." Goldman sets a $36 price target for the stock, and I think it's right. Shrek aside, this is one of the most creative film houses out there – future projects include Kung Fu Panda (I love the sounds of this!) and Madagascar 2.
As the parent of a toddler, I know how little good material is out there for kids and grownups. Dreamworks has the creative formula down for future family hits, the infrastructure to produce them quickly to build a library, and staying power in its existing franchises.
Type of Company: An animation studio that churns out quality, big budget -- and even bigger grossing -- family features like the Shrek franchise.
Price Target: Currently trading at $30.70, this is not for those who think DWA is overly reliant on Shrek -- though the market has shown that people aren't yet tired of the green giant. I am with Goldman Sachs in its target of $36.
Hilary Kramer is a financial editor and money coach for AOL and an authority on investing. Visit her at www.hilarykramer.com.
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