I don't think it was mentioned here, but the New York Times had a very favorable stock article about Pixar on Sunday. A Raging Bull member put it up on the board there:
Will Pixar Be the Hero of Hollywood Animation? By JOANNE LEGOMSKY
A thinking person's cult stock: That may seem an odd characterization for Pixar, the maker of "A Bug's Life," the 1998 animated children's film that featured 750 computer-generated ants. But investors who are bullish on the company say its technical and creative prowess makes it one of the few pure high-technology media plays, as well as a favorite to win the Hollywood animation wars.
Moreover, the company knows "how to create profitable franchises based on their movie characters," said Jeffrey Logsdon, an analyst with the SeidlerCompanies, a brokerage firm in Los Angeles. Consider "Toy Story," Pixar's first feature film, released in 1995. It generated $354 million in ticket sales worldwide. But profits on the $500 million --in part through successful video sales and merchandising royalties as the film's animated characters were plastered on everything from toothbrushes to greeting cards. But analysts figure that Pixar, of Richmond, Calif., kept just $50 million of that profit, with the remainder going to the film's distributor, the Walt Disney Co. So Pixar's chief executive, Steve Jobs, the co-founder of Apple Computer, negotiated what analysts say was a much more favorable deal with Disney in 1997. Under that pact, the two companies will split evenly Pixar's production costs and theprofits from Pixar films, video, and merchandise sales.
Logsdon expects "A Bug's Life," which has had ticket sales of $358 million so far, to earn Pixar $200 million in profits in its first 30 months. Pixar's stock has been notoriously volatile since its initial offering in November 1995. In the last 52 weeks, the shares have bounced between $27.50 and $66, and closed on Friday at $39.625. But bulls say investors who can stand the volatility may be in for aterrific ride. Logsdon expects earnings to double this year, to $1.39 a share, and to double again in 2000. That, he says, would justify a price-to-earnings multiple in the mid-40s, versus just TK today, and give the stock a share price of $60 in 12 to 18months.
"With each film, they're building their library of long-lived,extremely lucrative assets," said Stewart Halpern, an analyst with Furman Selz.Halpern said Pixar's expertise would become more valuable as digital processes became more important in the entertainment industry. He thinks the stock will hit $60 in 12 months. Key to Pixar's success is the company's technical leadership in computer-generated animation. It's technology is 20 percent to 40 percent cheaper than conventional hand-drawn animation and produces more lifelike textures and movements than those ofrival studios, analysts say.
One pitfall for Pixar, Halpern said, is that investors treat the opening of one of its films like the expiration of a stock option: Shares are bid up on heavy volume beforehand and sold afterward. Even investors who are bullish on Pixar may trade in and out of the stock. Susan Hirsch, manager of the Prudential Emerging Growth fund, who now owns Pixar shares, says there is a buying window from now until the release of "Toy Story 2" at Thanksgiving. But she thinks Pixar's unique animated products and access to the deep pockets of Disney's marketing machine hold longer-term promise. Short-sellers love Pixar, too: As of May 15, there was a three-million-share, or 6 percent, short position in the stock. But bulls bet that Jobs is a better barometer -- and he has never sold any stock. |
