Subject:  Pixar remains a hit with investors |
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Date Posted: 23:19:57 11/12/04 Fri
Pixar remains a hit with investors
Shares hit record high; valuation concerns remain
By Dan Gallagher, CBS MarketWatch
Last Update: 4:32 PM ET Nov. 12, 2004
SAN FRANCISCO (CBS.MW) -- Shares of Pixar Animation Studios Inc. jumped to a new record high Friday on the strength of a strong quarterly report, though Wall Street analysts are still voicing concerns about the company's valuation.
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Pixar (PIXR: news, chart, profile), based in Emeryville, Calif., saw its stock surge 8 percent to close up $6.60 at $86.54 vs. the previous record-high close of $84.45 seen on Nov. 5.
The stock also gained 3.5 percent in the previous session as investors awaited the third-quarter earnings report, which came in well in excess of analysts' forecasts.
Pixar's stock has made up for losses earlier in the week, as analysts voiced concerns that the company's latest feature "The Incredibles" could underperform its predecessors at the box office because of an edgier PG rating and heavier competition -- mostly from the Nov. 10 opening of the animated Christmas tale "The Polar Express" from Warner Bros., a unit of Time Warner Inc. (TWX: news, chart, profile). See previous story.
Analysts praised Pixar for its third-quarter performance, even as several cited concerns that the stock's high valuation leaves little room for upside -- even if the company's films remain box-office hits and the company is successful in landing a new distribution pact that allows it to keep all of the profits from its films.
"Despite 'The Incredibles' initial performance (in line with our expectations thus far), we continue to believe Pixar's share price reflects overly-optimistic assumptions about the studio's future performance, while overlooking some of the increased risk under a new distribution agreement," analyst Katie Manglis of Bear Stearns wrote in a report.
Not all are worried. Analysts for Merrill Lynch, SG Cowen and Credit Suisse First Boston predict that Pixar will continue to outperform the market.
"Based on our revised film estimates, our (discounted cash flow) and discounted future (price-to-earnings) valuation analyses suggest that the stock is worth approximately $90/share," wrote SG Cowen analyst Lowell Singer. "We remain constructive on Pixar shares at current levels for long-term investors."
For the third quarter, Pixar reported net income of $22.4 million, or 38 cents a share, compared with net income of $13.2 million, or 23 cents a share, for the same period last year.
Wall Street's average earnings forecast was 24 cents a share, according to Thomson First Call.
Revenue $44.5 million compared to revenue of $30.2 million for the same period last year. Analysts were expecting revenue of $31.8 million.
The results did not include proceeds from the company's latest box-office hit "The Incredibles," which raised $70.7 million during its opening weekend, setting a record for Pixar.
On a conference call, Pixar Chief Financial Officer Simon Bax said "The Incredibles" will be released into most international markets by the end of the year, and thus drive most of the company's fourth-quarter results. He issued a 2004 outlook of $2.10 to $2.20 per share in earnings -- above Wall Street's projection of $1.95 per share.
CEO Steve Jobs said the company was "thrilled" with "The Incredibles" performance. He also cited box-office figures showing the film performed stronger than "The Polar Express" on the latter film's premiere Wednesday.
"With this tremendous opening weekend, I think we can safely say that Pixar is now six for six -- a unique achievement in the history of the movie business," Jobs said on the call.
Jobs gave no update on Pixar's search for a new distribution partner, except to say that no talks were being held with the Walt Disney Co. (DIS: news, chart, profile), its current partner. The agreement with Disney ends after the release of Pixar's next animated feature film, "Cars."
According to Jobs, Pixar is considering shifting its film release schedule to the summer given the still strong performance of "Finding Nemo," which debuted in May 2003 and went on to hold a box office record for animated films - until DreamWorks Animation's (DWA: news, chart, profile) "Shrek 2" surpassed it this year.
Jobs said research showed that movies with a summer release benefit from higher midweek ticket sales as well as a holiday launch for the DVD version.
"The summer release window buys you a holiday DVD release window, which is better in all territories," Jobs said, adding that the company has not made any firm decisions on the matter.
Dan Gallagher is a reporter for CBS MarketWatch in San Francisco.
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