Shares of Pixar Animation Studios Inc. (PIXR) rose as much as 13 percent to a new 52-week high on Wednesday after the company beat quarterly earnings forecasts and said talks to extend its relationship with Walt Disney Co. (DIS) had been positive.
Several analysts raised their estimates for Pixar's full-year earnings based on third-quarter profit, citing the better-than-expected third-quarter results and expectations for DVD and pay TV sales of its library titles and the scheduled December 26 DVD re-release of the film "Toy Story 2."
There was also optimism that a long-awaited renewal of the successful Pixar-Disney partnership would be announced in the fourth quarter.
"The (Disney) negotiations are taking longer than expected, but (Pixar Chief Executive Steve) Jobs indicated (and we agree) it is worth the few extra months of effort to try and cut a deal with Disney," analyst Ralph Schackart of William Blair & Co. said in a note on Wednesday.
Schackart, who has an "outperform" rating on Pixar, raised his fourth-quarter earnings forecast by 6 cents, to 15 cents per share, the mid-point of the forecast range of 13 cents to 17 cents given by the company on Tuesday.
The analyst also raised his full-year forecast by 20 cents, to $1.14 per share, and raised his fiscal 2006 forecast by 17 cents, to $1.09.
Sanders Morris Harris analyst David Miller said Pixar turned in a "spectacular" quarter on the strength of its "evergreen" library. He raised his fiscal 2005 earnings estimate by 9 cents, to $1.19 per share.
Miller kept his fiscal 2006 estimate at $1.04 per share but said the number could move "way up" if "Cars," the last film Pixar is to release with Disney under their existing distribution deal, becomes part of a new agreement that gives Pixar a bigger share of its profits in 2006. "Cars" is due out next summer.
Disney and Pixar have split more than $3.2 billion in gross revenue from six films they have produced together. Under the current agreement, Pixar reimburses Disney for distribution and marketing costs.
Pixar wants to pay its new distributor a flat 8 percent fee plus marketing costs and retain the rights to its future films, Miller said.
Miller considered more likely a deal in which Pixar improves its split to 80 percent versus Disney's 20 percent and pays an 8 percent distribution fee to Disney.
Fulcrum Global Partners analyst Rich Greenfield kept a "neutral" rating on Pixar shares but raised his fiscal 2005 earnings estimate by 14 cents, to $1.17 a share, and raised his 2006 estimate by 13 cents, to $1.
Shares of Pixar were up $5.96 to $56.84 in afternoon trade on Nasdaq after rising as high as $57.66, a new 52-week high, earlier in the session.
The shares trade at a multiple of 53 times estimated 2006 earnings, according to Reuters Estimates. Disney, by comparison, trades at 17 times 2006 earnings.