Hulk's Success Already Built In to Marvel Stock

Hulk's employer, Marvel Entertainment (MVL), seems to have agreed. "The Incredible Hulk," the follow-up to "Hulk," hit theaters Friday and grossed $55 million through Sunday, a better-than-expected showing and enough to make it the weekend's top-selling movie. With reviews a bit kinder than those for the first movie, Wall Street analysts reckon "The Incredible Hulk" is on pace to make $150 million to $160 million in the U.S. "Iron Man," another Marvel movie that debuted seven weeks ago, ranked No. 7 over the weekend and has grossed nearly $300 million in the U.S. World-wide, both movies might make double their U.S. take.

Crucially for Marvel, the two movies mark its first attempts to handle its own production, accepting more risk for a shot at much greater profits. Two months ago analysts figured Marvel would earn $1.61 a share this year. Now they say $1.94.

This column recommended Marvel shares at $16 five years ago and at $28 and change in April 2007. Now they fetch $35, having easily beaten the broad market's gains.

Besides the surplus profits, there are other promising signs for the stock. At 18 times this year's earnings forecast, it's seemingly less expensive than five years ago, when it went for 23 times earnings. Also, management has bought shares in recent months, a promising sign that helped earn Marvel and seven other companies spots in a recent screen for insider buying. (To run the search yourself, use SmartMoney's stock screener and the full list of criteria.) And Marvel has a deep stable of comic-book characters that have yet to be tapped for film roles. Thor, Captain America and The Avengers already have theater dates. Nick Fury has a screenplay and Ant-Man, a director.

All that said, shareholders might have a bit of a wait for further price gains. Profit more than doubled last year, thanks largely to "Spider-Man 3," and at the time of my April 2007 write-up was forecast to dip this year. The success of "Iron Man" and "The Incredible Hulk" means this year's profit will grow, but by a comparatively modest 14%. That's because Marvel won't collect on the films until at least 45 days after Paramount, the distributor, has recouped its print and advertising costs. That likely means the bulk of revenue will hit in the last quarter of 2008 and the first two of 2009. The first of the aforementioned new movies won't hit theaters until 2010, so profits next year are expected to flatline compared with this year. Shares are cheaper than before, but the earnings growth is slower, too. Also, the recent insider stock buys look modest compared with some big sales made by managers who have exercised stock options.

All told, Marvel's valuable trademarks still allow the company to generate big profits with a minimum of assets, and the stock remains a fine choice for long-term investors, but don't buy it expecting to make a quick profit. Gains from "Iron Man" and "The Incredible Hulk" are already reflected in today's price, and the next price jump might take a while.

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