The Wall Street View
Using Wall Street consensus earnings estimates for the next five years, Marvel's stock (at roughly $29) looks cheap at just 17 times forward EPS, given the 18% annual EPS growth analysts expect over the next five years. Applying a discounted cash flow model to the consensus estimates, I believe the stock is worth $34.
Another $1 or so of upside may be offered if
Iron Man comes in at more than $70 million in its opening weekend.
The downside risk to the story, of course, is that
Iron Man,
Hulk and the whole other future slate of movies coming -- e.g.
Thor,
Captain America and
Nick Fury -- end up being busts.
Spider-Man 4 is likely to come out in either 2009 or 2010, and will surely provide a nice bit of growth (although Marvel is once again not capturing film profits from this, only license fees, as the movie will be financed through the Sony joint venture).
Investors have already been getting more excited about Marvel's stock of late, but there remains some skepticism, says Drew Crum, an analyst with Stifel Nicolaus who rates the stock a buy.
"The reward-to-risk ratio becomes less compelling ahead of the film if the stock is above $30," he says. "If the film falters on opening weekend, the stock is probably going to be weak."
Crum estimates that $150 million in U.S. box office receipts translates into about $65 million in gross film profits, excluding toy and merchandising sales associated with the film, which could add another $10 million and $20 million of profits. Every additional $25 million of U.S. box office translates into an additional $50 million of profit over the film's life, or about $1 to $2 in extra value per share, Crum says.
Nicholas Yulico
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