Horizon Kinetics Adds Shares of DreamWorks

The two closest peers for DreamWorks are motion picture company Lions Gate Entertainment Corp. (NYSE:LGF) and The Walt Disney Company (NYSE:DIS) which has many other business units including television but does of course operate an animated film studio. Forward earnings multiples at these companies are in the 13-14 range, though in the case of Lions Gate that is assuming considerable improvement on the bottom line (of course, at a film studio it is more likely to see extreme changes in earnings). Disney’s fiscal year ended in September, and in the fourth quarter of that fiscal year the company delivered a double-digit percentage increase in earnings primarily due to higher margins. We’d note that Lions Gate is also a somewhat popular short target, with the most recent data showing that 15% of the shares are held by short sellers, but either of these companies looks like a more reliable value investment than DreamWorks.

Two additional media companies who include motion picture production among their activities are News Corp (NASDAQ:NWSA) and Comcast Corporation (NASDAQ:CMCSA), which is now the owner of NBC Universal. News Corp’s forward earnings multiple is 14, but again that is dependent on better earnings in the next several quarters. In this case, the investment thesis depends on a successful breakup of the company and for management of the new businesses to focus on their own operations. Comcast trades at 18 times trailing earnings, but even this is a discount to DreamWorks and the company reported 15% revenue growth- and very high earnings growth- in its most recent quarterly report compared to the same period in 2011. Comcast should also be noted for having a very stable core cable business.

This looks like a speculative move by Horizon Kinetics, as DreamWorks’ value- particularly given its premium to much larger and more stable entertainment companies- is dependent on some combination of growth initiatives and landing more popular entertainment franchises with its film business. Shorting is probably unwise given a likely high cost to borrow, but we do not think that investors should be long either.

Disclosure: I own no shares of any stocks mentioned in this article.