Analysts Await Fate Of Pixar's 'nemo'

If anything is as predictable as a hit from Pixar Animation Studios, it's that the stock will crest around its opening and dip afterwards.

The relatively long wait between Pixar's few but profitable films may be one reason that investors lose interest. Some analysts suggest it's simply the classic trading pattern of buying on the rumor, selling on the news.

Whether the pattern repeats itself will be known around May 30 with Pixar's domestic release of its latest co-production with Walt Disney Co., "Finding Nemo." Pixar is being cautious in estimating an opening weekend boxoffice of $40 million, according to Prudential Financial analysts, who instead expect a more than $60 million opening and an eventual domestic boxoffice of $288 million.

While Pixar's stock has tended to trade down about 23% in the weeks after a release such as "A Bug's Life" and "Monsters, Inc.," the dip has been slighter with each movie, leading Prudential to suggest that shares -- now at its price target of about 57 -- will not trade off that much in June. The stock has been steadily approaching its four-year high of 61.90 for much of the past three months.

Still, the investment bank, like others, is maintaining a hold rating on Pixar, in part because much of its potential growth is already priced into the stock unless Pixar and Disney renegotiate their deal with substantially better terms for Pixar. The assumption is that the current 50/50 split could rise to 60/30 in favor of Pixar for "Finding Nemo," the third movie under the current deal, and as high as 80/20 for the fifth film, "Cars."

If the 50/50 split is not altered, Pixar will not see much earnings growth unless each of its next three releases can financially eclipse each other and the stellar theatrical and home video performance of "Monsters, Inc.," according to Sanders Morris Harris.

Again, the wild card is the Disney negotiations, which should lead to near-term volatility for Pixar shares, as will the release of "Finding Nemo," according to Merrill Lynch. Beyond that, Pixar's stock will find support in anticipation that it will negotiate to get a greater share of its films' profits.

Merrill Lynch is maintaining a buy rating and a price target of 63 even though Pixar trades at a significant premium to fellow media and entertainment companies. A pristine balance sheet, no debt and roughly $450 million in available cash add to that optimism, with the greatest risk being, as always, the failure of one of its films.