Financial Advisor Update
A Trade on Marvel's 'Hulk' (And a Poll)
Nicholas Yulico
06/13/08 - 01:57 PM EDT
Marvel Entertainment's(MVL Quote) stock has soared over the past month on the phenomenal success of its Iron Man film, but today's cinematic release of The Incredible Hulk could end up a slight disappointment.
I remain a long-term bull on Marvel, but I believe the stock is more likely to sell off than pop on Monday, when the box office numbers for Hulk are released.
I also believe there is a good shot that the stock will be stuck in neutral next week. My thesis this time around is that analyst expectations are too bullish for a film that may very well just meet expectations.
Last time around, Wall Street was too bearish on Iron Man, which opened up the window for a profitable time to buy Marvel's stock. Today, there is another good trade in store for investors.
A covered-call strategy could work perfectly here. This is where you own the stock, and sell, or write, calls to collect immediate income. The bet being made is that the stock in the short term will either move lower or stay flat.
Today, most analysts are projecting U.S. box office numbers of $150 million for Hulk, which suggests a $50 million opening weekend. Hollywood Stock Exchange, a reliable online estimator of movie sales, projects $154 million domestic box in the first four weeks.
I believe the stock, at roughly $36 today, is fairly valued, assuming the Hulk grabs that $150 million box.
My film model for Marvel, which uses estimates from the company and Janco Partners research, suggests that if the film generates more than $60 million this weekend, then another 60 cents or so in value is added to Marvel's share price. Essentially, each additional $10 million in domestic box, above the $50 million mark, adds about 60 cents in value.
Longer-term drivers for Marvel will be an expanding multiple, as investors become comfortable with the risk of this new internally-financed film studio business.