Marvel shines its profitable Iron... Man

Beating street estimates for Marvel Entertainment (MVL) has become the norm, with a 6th straight quarter of analyst trouncing results. Clearly the comic book company's foray into the film business has been successful. The numbers show the tremendous potential of a successful film franchise, and Marvel's expecting a 2nd and 3rd.

Coming in at $0.80/share profit for the quarter, a beat of 8 or 9 cents according to the various Wall Street average estimates, Marvel shined in early trade with shares up about 15%. A stock that was flying in the mid 30s after the successful run at the box office of Iron Man has been resilient but not immune to the economy of late. Marvel had held up better than most stocks over the last several months but with selling pressure mounting market-wide, Investors were fleet of foot here also. Marvel fell below $24 before today's rebound on strong results and re-affirmed guidance.

Perhaps the most telling strong sign of the Marvel story is the re-affirmation of previous guidance. Marvel guided 2009 in a range of the $1.00s to the $1.30s, which a rarity in today's economics is unchanged from previous verbiage. This kind of confidence, considering Street estimates for Marvel's 2009 average around the $1.20 mark, has spurred renewed confidence that the company can and will be a growth story in the years to come.

Revenue for the quarter came in at $224 Million (profits of $63 Million) and closing out the record year were numbers of $676 Million in Revenue with $205Million at the bottom of the Income statement. A big chunk of this was due to Marvel Studios with the Iron Man and Incredible Hulk films that opened in the summer of 2008. Iron Man DVD and Blu-Ray sales, according to Marvel were the biggest drivers of the quarterly revenue spike at the culminating quarter of last year.

Investors see 2009 as a watershed year for Marvel as average estimates of $1.20 are off significantly over the $2.61 Marvel posted for 2008. What the Street does realize however is that Marvel stock can not be a complete P/E story but has to be an Entertainment cyclical story. With no self-financed films on its plate in 2009, Marvel must rely significantly on licensing and publishing revenue. As an aside, the company has declared that it will recognize most of The Incredible Hulk DVD revenue over 2009 as opposed to Iron Man DVD revenue which provided the boost in the December quarter. Marvel will reap licensing revenue from the Wolverine film over at Fox Studios as well as from its own slate of Animated straight to DVD releases and various television projects.

The real story is growth in Marvel as a brand and a business! With earnings of $2.61/share in 2008 with 2 self-financed films, Investors see the upcoming slate of 2 films in 2010 and 2 films in 2011 and begin to get bullish behind this story. With Iron Man 2 scheduled for 2010 and the highly anticipated Avengers combination film in 2011 Marvel has tapped a Revenue stream that it can call upon for the next several years. Marvel Bulls expect both those films to be successful but if either Thor or Captain America catch on as a film franchise, the growth engine will be remarkable. Iron Man, who has captured the imagination of audiences around the Country in his first installment, is poised for bigger, better and global reaches the 2nd time around. With added anticipation for the sequel, expect Marvel to cash in from the Worldwide box office at higher rates, which will significantly add to the company bottom line.

Those in tune with the latest industry news will be quick to point out that Marvel's in the middle of more than a couple potential stumbling blocks. A lawsuit with Stan Lee Media that threatens either a large ownership change of character rights and profits or some kind of settlement, a constant barrage of bad press over acting negotiations for Iron Man 2 and subsequent films, and the seemingly rushed time-lines to get said films completed on time and on par with quality Marvel efforts. In time I think the nay-sayers will be vilified. Marvel should not and can not allow itself to be crippled now by any lawsuit, and negotiations for film roles are an ongoing process and one that should not spill over into public conversation as it has. If anything, Marvel needs to hire more PR people to keep the Entertainment Press in control and in company favour.

Marvel is a $2Billion company, with yearly profits of over $200Million in its first year of producing film. The move into the film business garnered over three quarters of a Billion dollars in Box Office receipts. With four films on the upcoming independently produced slate, plus merchandising, publishing and licensing revenue, the company has a lot of growth ahead of it. It may take until 2010 for Investors to price this in but market cap will catch earnings potential, and economic recovery will only act as an accelerator to Marvel's growth machine.

Disclosure: Author owns MVL