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This stock is a nightmare

This stock is a nightmare

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This sector could be the best bet this year

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Wednesday was a nightmare for DreamWorks Animations.

Shares of the media giant dropped nearly 9 percent, making it the company’s second worst day since its 2004 IPO, after it missed first-quarter earnings and revenue estimates. The loss was largely due to an impairment charge of $57 million dollars related to the weak box office performance of their latest film “Mr. Peabody & Sherman.”

(Read:DreamWorks posts 1Q loss on 'Peabody' write-off)

In a year when media stocks have been hot, DreamWorks’ performance has been anything but. Its stock is down over 30 percent this year, while Lions Gate has lost around 16 percent, proving true the old adage that there really is no business like show business.

But despite the selloff, John Kosar of Asbury Research sees a buying opportunity.

“We’re into some really nice support right around $23 dollars per share,” Kosar said. “I think this is a place to look for value and opportunity. I would wait to see if we hold in here the next couple of days. If we do, I think we could bounce back to at least $26.50 per share.”

(Read: Execs: On-demand-TV ads more valuable than live)

On the fundamental side, Vasily Karasyov of Sterne Agee said the worst is yet to come for DreamWorks.  “Remember, it’s a film studio and out of the last four films, three lost money,” Karasyov stressed.

Karasyov wrote in his latest note that DreamWorks Animation “films are just too expensive relative to the box office opportunity, and until this imbalance is corrected, the risk of underperformance and write-downs will remain high.”

And according to Karasyov, DreamWorks could hit box office home run after home run and still be expensive.

“We have a $17-dollar piece target,” Karaysov said. “But that’s assuming all future films make money and none of them have a write-down, which seems to be more of an optimistic assumption after the string of recent failures.”

Check out our blockbuster segment on CNBC “Street Signs” above.

Disclosures:

Sterne Agee has a price target on DWA of $17

Sterne Agee rates DWA as underperform


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