Marvel's Heroic Pipeline

It was the bitter sting of a spider's bite that gave Peter Parker his superpowers -- transforming him into the superhero Spider-Man of comic book and movie fame. But there's nothing bitter about the news at Spider-Man's home -- Marvel Enterprises (NYSE: MVL  ) -- these days.

Marvel, a Motley Fool Stock Advisor recommendation, reported that net income increased 123% over last year's fourth quarter -- and EPS rose from $0.12 to $0.27, primarily because of contributions from a joint movie-mechandising venture with Sony (NYSE: SNE  ) . Also contributing to the growth at Marvel: improved international licensing revenue and a tax credit that helped earnings to the tune of $.06 per share. EPS trounced the $0.16 per share analysts had expected.

How is that for superhero results? The company predicted in May that it would use $160 million from its $292 million stash of cash to pay off its entire debt -- and still end 2004 with 200 million greenbacks. Result: The debt is gone, and there is $204.8 million in cash at year-end (even after spending $14.4 million in the fourth quarter to repurchase a million of its own shares).

For the Otto Octaviuses (villains, for those of you who aren't Spider-Man buffs) out there, here's your news: Net income for 2004 fell 17.7%. That, along with the fact that Marvel's expected 2005 revenues of $370 million to $390 million are following a huge $513 million sales year, might explain why the stock sells for a fairly timid 19 times trailing earnings.

Marvel has also had a slow start at the movie box office in 2005, which certainly hasn't helped the earnings multiple. Jennifer Garner as Elektra has managed a worldwide gross of only $48.5 million -- peanuts when you consider that the original Spider-Man earned $43.6 million in a single day!

But the company is predicting earnings of $1.07 to $1.12 a share for 2005 -- roughly the levels earned in 2004. For many companies, flat earnings would leave investors feeling like they had been body slammed by The Hulk. But if you look at the pipeline of products Marvel has coming, you might make wonder whether the company is predicting sales on the conservative side.

In 2005, Marvel's big summer movie will be Fantastic Four from 20th Century Fox, a News Corp. (NYSE: NWS  ) company. Merchandise from the movie will include fun toys like The Thing (feet and hands). Marvel's 2005 crop is also slated to include seven video games -- four from Activision (Nasdaq: ATVI  ) and one from Electronic Arts (Nasdaq: ERTS  ) -- both companies Motley Fool Stock Advisor recommendations.

And then there's 2006, which promises six feature films, including the sequels X-Men 3 and The Punisher 2. New characters going to the silver screen include Nicolas Cage as Johnny Blaze in Ghost Rider. The first of eight made-for-DVD animated movies -- created with Lions Gate Entertainment (NYSE: LGF  ) -- will be introduced, as well. And, there will be 26 half-hour episodes of an animated TV series based on Fantastic Four, the movie.

If that doesn't get your heart pounding, in 2007, Universal, a General Electric (NYSE: GE  ) subsidiary, will issue another sequel, Hulk 2.

And, as of noon today, there are only 787 days and 12 hours remaining until the release of Spider-Man 3.

Add it up. While earnings will be flat this year (but still producing lots of sweet cash), there is a potentially gigantic bulge coming down the pipeline. For long-term investors -- particularly box-office fiends like me -- the future looks absolutely super, and the shares look undervalued.

Motley Fool co-founder David Gardner is riding high from entertainment recommendations in theMotley Fool Stock Advisornewsletter. His July 2002 selection of Marvel has increased 432% , while the S&P 500 has advanced only 18.9%.

Fool contributor W.D. Crotty owns stock in Marvel Enterprises and News Corp. -- and (big surprise) he's a movie junkie. Clickhereto see the Motley Fool's disclosure policy.


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