Robert Downey Jr. may have missed out on Oscar gold for his fine performance in Tropic Thunder, but for Marvel Entertainment
Reporting results earlier today, Marvel bested Wall Street's estimates for the sixth consecutive quarter by earning $0.80 per share on $224.3 million in fourth-quarter revenue. Analysts had expected $0.70 a share on $213.5 million in revenue.
For the year, Marvel booked $676.2 million in revenue and earned $2.61 per share, 39% and 54% increases, respectively. Both results eclipsed Wall Street's guesses.
A Golden Avenger brings gold and green
In Q4, Iron Man was, once again, the driver. Marvel's Film Production unit generated $135.5 million in fourth-quarter revenue, most of which was attributable to DVD sales of the film.
Interestingly, Marvel's studio partner, Viacom
So, expect Marvel's cash coffers to be flush in the first quarter. Not that they aren't already:
Components of |
2008* |
2007* |
2006* |
2005* |
---|---|---|---|---|
Reported net income |
$205,535 |
$139,823 |
$58,704 |
$102,819 |
Depreciation and amortization |
$1,559 |
$5,970 |
$14,322 |
$4,534 |
Amortization of film inventory |
$135,339 |
$0 |
$0 |
$0 |
Amortization of financing costs |
$4,981 |
$4,980 |
$4,980 |
$1,660 |
Deferred revenue |
($16,509) |
($28,956) |
$140,087 |
($6,093) |
Film production costs |
($53,135) |
($251,045) |
($15,055) |
$0 |
Net borrowings from film facility |
($74,209) |
$255,926 |
$7,400 |
$25,800 |
Capital expenditures |
($2,384) |
($2,659) |
($16,286) |
($4,289) |
Adj. Operating Cash Flow |
$201,177 |
$124,039 |
$194,152 |
$124,431 |
Sources: Press releases, SEC filings.
* Numbers in thousands.
Marvel ended 2008 with $138 million in cash and short-term investments. And that's after paying off more than $180 million in film debt and spending $10.5 million to repurchase shares.
Whither Wolverine?
Those are undeniably impressive numbers. Yet bears will tell you that Marvel's 2009 story lacks punch. "Pipeline for 2009 is weak. Strong competition in genre in 2009 from Watchmen, Terminator, and Star Trek. Look for recovery in 2010," wrote CAPS investor abgreenberg recently.
True. In particular, I like the previews for Star Trek and Watchmen as much as I like the previews for X-Men Origins: Wolverine. Plus, Wolverine is a licensed property -- all the film rights to X-Men characters were sold to News Corp.'s
Marvel's overall licensing business, meanwhile, is expected to produce just $180 to $200 million in 2009 revenue, well below last year's $292.8 million. Wolverine, declawed. Unless, that is, management is being exceptionally conservative with its estimates, which it usually is.
So, I can see the rationale for selling -- or waiting to buy -- if you're a trader. But if you're not, if you're building a portfolio to generate wealth over the very long-term, why wouldn't you buy Marvel now?
Psssst, buddy! Want to buy a studio, cheap?
Put it this way. Film Production alone produced $102.7 million in operating income last year. Taxing that at 40% and then dividing by 78.9 million shares outstanding results in $0.78 per share.
What's that worth in market value? Assigning multiples can be a tricky business. Here, because of economic uncertainty and the 2009 lag, I choose 10. It's also close to the trailing P/E of the S&P 500 SPDR
The rest of the math is easy. Assuming Marvel Studios is worth $7.80 per share -- $0.78 times 10 -- then the rest of the company (i.e., licensing, publishing, etc.) was worth just $16.12 a share as of yesterday's close, or less than 9 times the $1.83 in per-share income those units generated last year.
Only in a panicked market like ours would that price be considered fair. Actually, not even then; shares of Marvel are up more than 15% as I write. Yet, even after the run-up, the stock still trades for roughly 11 times trailing earnings. Cheap, right?
Skeptics will argue that's fair given that Disney
Marvel also generates the sort of stratospheric returns on invested capital common to a high-growth software company, not a movie studio:
Return On Invested Capital* |
2008 |
2007 |
2006 |
2005 |
---|---|---|---|---|
Earnings before interest and tax |
$367.97 |
$273.03 |
$110.16 |
$181.17 |
NOPAT (37.5% tax rate) |
$229.98 |
$170.64 |
$68.85 |
$113.23 |
Avg. Invested Capital |
$540.16 |
$387.86 |
$345.75 |
$466.45 |
ROIC |
42.6% |
44% |
19.9% |
24.3% |
Source: Capital IQ, Marvel press release.
* Numbers in millions.
This is a studio that turns iron into gold. That has to be worth more than a market-average price.
Face front, True Believer! More Marvel Foolishness awaits:
- Santa only delivers in December? Not for Marvel investors.
- Traders were missing out on Marvel in Q3, too.
- Batman is dead! Oh, wait ...