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Iconix Brand Group Inc (ICON), The Walt Disney Company (DIS): A “Fat” Brand To Help You Live Large

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Iconix Brand Group Inc (NASDAQ:ICON)‘s brand portfolio is ranked second only to The Walt Disney Company (NYSE:DIS). Its operating margin is fat at 60.51% and its PEG is low at .63. The market values it at a 2014 earnings multiple of 13.63. Yet you almost never see it on the CNBC scrawl, although your family is probably wearing or using one of its brands. It’s a small cap of $1.28 billion… for now.
The Walt Disney Company (NYSE:DIS)Take a look at the labels on your clothes…are you wearing Joe Boxer underwear? Is your little girl dressed for dance class in a Danskin leotard? Raining out? Did you don a London Fog raincoat? Or is your teenager equipped for the soccer game in Umbro gear?

Iconix Brand Group Inc (NASDAQ:ICON) manages 31 diverse brands ranging from luxury Badgley Mischka to value names Mossimo and Fieldcrest linens. It markets across the range of retail from luxury retailer Neiman Marcus to value giant Wal-Mart.

Their business model is unique in its ability to generate free cash flow, revenue, and diluted EPS at seven year CAGRs of 46%, 42%, and 36% respectively.  It has a low risk profile unusual to companies involved with apparel and home fashions. Finally, brands it buys are immediately accretive. As an intellectual property licensor and marketer it has low overhead.

How does this model work? It buys a brand license then markets it for retailers who themselves have the responsibility to source, manufacture, design, manage inventory, warehouse, and actually sell the product.  As of the end of June Iconix Brand Group Inc (NASDAQ:ICON) took in aggregate guaranteed royalties of $800 million. Thanks to this cash stream analysts project 23% five year EPS growth.

Net profit margin comes in at 36.20% above its historical average of 34.50%. Free cash flow is expected at $203-210 million for 2013 and the company has $441 million in cash.

International is now 33% of the brand portfolio, but the company aims for 40% and brand acquisitions going forward will be international. Iconix Brand Group Inc (NASDAQ:ICON)’ crown jewel is the Peanuts brand accounting for 23% of portfolio revenues. The Peanuts brands has 800 licenses and a full length feature film Peanuts movie in collaboration with Twentieth Century Fox is planned for 2015. This Peanuts movie will likely generate additional revenues for its licenses with cross promotions much like that master of marketing, Walt Disney.

Mickey Mouse vs Snoopy
The Walt Disney Company (NYSE:DIS) has iconic Disney characters, Marvel superheroes, Lucasfilm’s Star Wars, and more under its branding umbrella.The International Licensing Industry Merchandiser’s Association has listed The Walt Disney Company (NYSE:DIS) as number one global licensor for several years running.

But for all that you will pay more with a forward earnings multiple of 15.90. The yield now is a somewhat paltry 1.20%. Operating margin at 21.07% isn’t nearly as impressive as Iconix Brand Group Inc (NASDAQ:ICON)’ nor is the PEG of 1.53.

The Walt Disney Company (NYSE:DIS) has been an outperforming stock as investors realized for the price of the media division (films, Disney network, ESPN, and ABC are responsible for the lion’s share of revenue and operating profit) they got Resorts and Licensing for free. In the third quarter consumer retail segment revenue came in at $775 million and operating income rose 5% credited to higher Merchandise Licensing business.

At the annual shareholder meeting in March CEO Robert Iger had reason to boast, ” In Fiscal 2012, we increased revenue by 3% to a record $42 billion, which led to a record $5.7 billion in net income, up 18% over the year before. And our earnings per share were up 24%, setting a new record of $3.13.”

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