Well-known media analyst Richard Greenfield this morning issued a “sell” on DreamWorks Animation stock and lowered his price target to $25 from a previous $28. Because he said a Megamind write-off is now looming. “We continue to believe DWA shares are overvalued,” Greenfield says. “Our original short thesis was premised on 2011 consensus expectations being far too high. However, we now believe 2010 estimates need to come down as well. Both Megamind box office results and Shrek Forever After DVD sales are meaningfully underperforming expectations…

“We believe a $0.20-$0.25 write-off of Megamind is possible in calendar Q4, which could further reduce our 2010 EPS estimate. A Megamind write-off would also have a modest negative impact on our revised 2011 EPS estimate (as DVD earnings would not generate profits in 2011)… With Megamind finishing its domestic box office run, the film is struggling to get to our revised, below consensus $149M estimate (currently at $140M).

“Overseas, Megamind’s box office is far worse on a relative basis to prior DWA films, with only $67M of box office to-date. While the film has several markets left to open, the only major markets left are France, Mexico, Italy, Japan and the Nordic region. In the UK, through two weeks of release, Megamind has generated only $7M of box office, compared to $15M for How to Train Your Dragon, $17M for Monsters vs. Aliens. We are lowering our international box office estimate to $156M from $176M.

“We expect DreamWorks to release the Megamind DVD in late Q1 2011. Given the film’s underperformance both in the US and overseas, we suspect it will be very difficult to market. Depending on how conservative management’s DVD forecasting is, we believe DWA may need to write-down Megamind when they report Q4 2010 earnings in early 2011.

Greenfield also had warnings about another DWA title: “While Shrek Forever After generated a surprisingly healthy $737M in worldwide box office (aided by 3D pricing), the film underperformed in the U.S. Selling a sequel on DVD, especially the fourth in a series, is hard enough. Then, layer in weak reviews / poor “word of mouth” and Shrek Forever After is going to be a tough sell at retail.  While we believe Shrek DVD sales skewed toward higher priced SKUs (four pack of all the Shrek films and the Shrek Forever After double pack), we believe overall unit sales were quite weak. We are reducing our Shrek DVD unit sales by 30%-plus.”

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