A $300 Million Iron Man?

Iron Man has already proved to be pure gold for Marvel Entertainment (NYSE: MVL  ) . But if history serves, the film is about to go platinum by netting more than $300 million at the domestic box office.

Here's why:

Film

31-Day Total

Total

Difference

Spider-Man

$353.8

$403.7

$49.9

Transformers

$290.4

$319.2

$28.8

Source: Box Office Mojo. Dollar amounts are in millions.

Through its first 31 days, Iron Man had accumulated $276.2 million nationally at the box office and $517.6 million worldwide.

With weeks to go before the film is pulled from theaters -- both Spider-Man and Transformers spent at least four months on the big screen -- the $300 million plateau is all but guaranteed, which means Marvel executives will very likely raise guidance and send the stock soaring.

Let's revisit the numbers. Marvel said in a 2006 presentation that a $300 million film would return $222 million to the company in operating profit before merchandising. Of that, executives estimated that 23%, or $51 million, would be realized in the year of release.

To be fair, Marvel also said recently that costs could trend incrementally higher than anticipated in 2006. Still, executives call for between $104 million and $122 million in net income in 2008 -- or $1.35 to $1.55 per share -- for just the core business. Not a penny of expected film profit is included.

Crazy, right? I'll say: $51 million taxed at 39% is $31.1 million. Per-share, that comes to $0.40. Forty freaking cents without any contribution from the forthcoming reintroduction of the Hulk to celluloid.

It is possible, of course, that revenue won't be recognized in 2008. The DVD selling season could slip. Management could fail to contain costs. A stray butterfly in the Amazon could cause a hurricane in Manhattan.

Nevertheless, I'm optimistic. Consider the competition, or lack thereof. Disney's (NYSE: DIS  ) sequel to the Chronicles of Narnia isn't performing to expectations. Speed Racer has been a bust for Time Warner (NYSE: TWX  ) . And while Indiana Jones and the Kingdom of the Crystal Skull has the makings of a blockbuster, it, like Iron Man, is distributed by Paramount Pictures -- good news for parent Viacom (NYSE: VIA  ) .

Finally, there's Sex and the City, which is whipping up plenty of interest among fans like my wife and has the makings of a hit. But let's be honest: Sex's viewers aren't likely to spend a sawbuck to see ol' Shellhead.

Thus I'm sticking with my math: Marvel will earn at least $0.40 more than current estimates suggest, which means this super-powered stock trades for no worse than 20 times current-year earnings.

A platinum-plated bargain? No. But not at all expensive for a business whose returns on invested capital are -- wait for it -- more than three times better than entertainment top-dog Disney.

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Fool contributor Tim Beyers had positions in Marvel shares and LEAP options at the time of publication. Tim also writes for Rule Breakers. You can read Tim's profile and his latest blog entry. The Motley Fool's disclosure policy is so money ... and it knows it, too.


Read/Post Comments (4) | Recommend This Article (37)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 04, 2008, at 5:40 PM, TMFSpiffyPop wrote:

    As pointed out on our discussion boards, the first review up on RottenTomatoes.com liked "Hulk" quite a lot. Granted, it's from a Sci-Fi site. Still and all....

    Thanks, Tim. I like that you're putting a numerical prediction out there.

    Fool on,

    David

  • Report this Comment On June 04, 2008, at 7:02 PM, TheGarcipian wrote:

    I too appreciate the hard number being put out there, Tim. Forty cents is a whopper, and it goes to show how much just one hit film could score Marvel and its shareholders (like me!). I'm certainly hoping that the numbers come through, but even if they don't, Marvel to me is still an excellent long-term hold. I just watched "Iron Man" in the theater and loved it. It had a very good balance of character development, and a motivational-driven and (more important) believeable plot line, not just excellent special effects and random chase scenes. Excellent. And for those of you who didn't stay until the very very end of the film (after the credits), well, ya missed a nice lil' teaser... ha! Marvel's got more stories up its sleeve.

  • Report this Comment On June 08, 2008, at 9:40 PM, michlav1 wrote:

    "Finally, there's Sex and the City, which is whipping up plenty of interest among fans like my wife and has the makings of a hit. But let's be honest: Sex's viewers aren't likely to spend a sawbuck to see ol' Shellhead."

    Exactly how unlikely is it that Sex's viewers won't see Iron Man?

    I and my sister love Sex and the City and we also loved Iron Man (Iron Man first since we also read the comic books). We also know women who went to see both Iron Man and Sex and the City. And I know women who aren't interested in either.

  • Report this Comment On June 10, 2008, at 3:48 PM, maxnik0215 wrote:

    my wife and myself went and saw The Iron Man and Sex and the City. My wife actually didn't like Sex and the City at all and liked The Iron Man, and she is not a sci-fi geek at all. Marvel did an excellent job and I hope Hulk 2 will be great also. I guess I'm one of those very few people who did like Hulk 1...

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