A Tinseltown Marvel

Just like Spider-Man, Marvel Enterprises (MVL) is climbing high: Its stock jumped from 4 last July to 16 on Apr. 23 as the company morphed from a comic-book outfit to an entertainment marvel. "It has been a great success: Marvel cleaned up its balance sheet, repaid the bulk of its huge debt, and focused on profitability," says money manager Robin Kerr of Axe-Houghton Associates, which owns 820,600 shares. Kerr thinks her earnings estimates of 75 cents a share for 2003 and $1 for 2004 are conservative.

She figures the stock could hit 20 in six months. Marvel will get a boost from the coming sequel to the movie X-Men (licensed to Activision), which grossed $315 million in 2002, and from The Incredible Hulk, out in June and expected to rival Spider-Man's worldwide gross of $823 million. A sequel to Spider-Man is due in 2004. Comics and toys are important, but licensing its 4,700 characters is what's driving Marvel's profits, says Kerr. When movie studios are clients, Marvel gets royalties from Hollywood, which also promotes sales of DVDs, video games, and toys.

Glen Reid of Bear Stearns, who rates the stock outperform, notes that with a yearly capital expense of just $4 million, free cash flow will improve from an already impressive 73% of EBITDA. Return on invested capital is more than 20%. Marvel was a Ron Perelman company -- until he loaded it with $1.8 billion in debt, thus forcing Marvel to file for bankruptcy in 1996. Two years later, it emerged from Chapter 11, when turnaround pro Peter Cuneo took over and turned Marvel from just toys to licensing. Current CEO Allen Lipson says he will use Marvel's huge cash hoard to acquire more characters and further expand Marvel's appeal, and probably buy back shares.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

By Gene G. Marcial

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