Tech World: DreamWorks Generating Great Return on Equity
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August 12, 2008
DreamWorks (DWA) engages in the development and production of computer generated animated feature films in the United States. It produces animated films for theatrical, home entertainment, and television markets. The company has theatrically released a total of 13 animated feature films. Strategic alliances include: the Kellogg Company; Hewlett-Packard; and Advanced Micro Devices, Incorporated. The company was founded in 1985 and is headquartered in Glendale, California.
The company recently announced that it is close to receiving $500 million in funding from Indian billionaire Anil Ambani, allowing it to split from Viacom Inc. (VIA), The deal could be reached as soon as next week. The studio will borrow $400 million and no other equity will be needed.
DreamWorks has great fundamentals with terrific cash flow and return on equity. The company has annual sales over $830 million and in percentage terms has a sales growth rate exceeding 30 percent per year. The last earnings announcement showed total revenue of $140.8 million and net income of $27.5 million, or $0.30 per share on a fully diluted basis. This compares to revenue of $222.5 million and net income of $61.8 million, or $0.60 per share on a fully diluted basis, for the same period in 2007.
The stock is in an Elliott Wave-4 buy formation, projecting gains into the $36 per share by the end of October. The company does have a liquid options market that currently extend out to January of 2010 allowing the options strategist more than enough time to trade this potential bullish opportunity.
Figure 1: Daily Elliott Wave-4 Buy Pattern for DreamWorks
(Source: Profit Source)
(click here for larger view)
Happy Trading.
Jeff Neal
Senior Writer, Options Strategist & Profit Strategies Radio Show Market Correspondent
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