Janney Montgomery Scott analyst Tony Wible reiterated his "buy" rating on shares of digital production and effects company Digital Domain Media Group, according to a report by The Hollywood Reporter , saying that recent news of a planned Abu Dhabi studio and Paramount's decision to push back the release of G.I. Joe: Retaliation will benefit the firm.
"It stands to benefit from new visual effects production capacity and its transition towards becoming a full production animation studio," Wible wrote in a report.
Digital Domain, whose founders include director James Cameron, did the visual effects work on the G.I. Joe sequel. "Viacom is apparently looking to convert the film to 3D, and Digital Domain is in an ideal position to pick up this work as it worked on the film and owns key 3D patents," Wible said. "We estimate the 3D work could contribute another $10 million to $20 million to Digital Domain revenues."
The company's stock closed last week at $7.36, and Wible said his fair value estimate for the company is $9, providing further upside.
In early Tuesday trading, the stock was up 1.9 percent at $7.50. The firm went public last year.
In Digital Domain's Abu Dhabi deal, the company announced in Cannes that it is working with twofour54, the government-backed media and entertainment hub of the emirate, to start an animation, visual effects and motion capture studio and a media school in Abu Dhabi.
The emirate also recently announced a 30 production tax rebate. "Digital Domain is now ideally positioned to pick up more contracts due to this dynamic, while the studio should have a substantially lower cost base due to the cost of talent in the region and the fact that part of the deal grants will refund Digital Domain's labor cost," Wible said.