Good Grief! Investors are Betting on a Big Budget Charlie Brown Film
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Can Snoopy, Lucy, and Charlie Brown captivate another generation of Americans?
Wall Street seems to think so.
With a big-budget Peanuts film set to appear in theaters next year, an unusually high number of U.S. mutual funds have been buying shares of Iconix Brand Group , the little-known company that owns 80% of the rights to the characters that first made their way onto newspaper comic pages more than 60 years ago.
The number of new funds owning shares swelled 36% last quarter, according to Morningstar. That is a high number for a small-capitalization stock with a market value of $1.9 billion and a slowing core business.
The stock is up more than 40% over the past 12 months, which is about 15 percentage points better than the broad market.
Few consumers have ever heard of the New York-based company, though they may be familiar with its roster of 35 brands, ranging from mass-market staples like Joe Boxer and Ed Hardy to Cannon linens and Material Girl, the line of apparel and accessories from Madonna and her daughter.
But with many of its U.S. retail partners, such as Target , Macy's and Sears , struggling with falling traffic and weak consumer demand, Iconix is looking elsewhere to expand — such as films.
"With what is happening in America we don't see large growth there over the next couple of years but we do see stability," Chief Executive Neil Cole, the brother of fashion designer Kenneth Cole, told analysts after the company reported its quarterly results in April.
Should the Peanuts movie prove to be a hit, it could help Iconix double its revenues, which hit $433 million in 2013, Cole told analysts. The company declined to comment for this story.
Already, the brand has paid some dividends: ABC, owned by the Walt Disney Co. , renewed its long-standing contract to air the popular Peanuts holiday specials 18 months before it came due.
There is no telling how well the movie will be received, of course. For every hit like "The Lego Movie," which has brought in $256.7 million at the U.S. box office, according to Box Office Mojo, there has been a film like 2013's "The Lone Ranger," whose $89 million in U.S. box-office take paled against an estimated cost of $215 million.
Though the percentage that Iconix could reap from next year's film was not disclosed, the Peanuts brand should command a premium, said Charles Grimes, a Norwalk, Connecticut, attorney who specializes in character licensing and has worked with properties including Archie comics and Disney characters. It would "not be inconceivable" for the company to get an upfront fee of $10 million or more for the theatrical release of the film, plus additional fees once the box office draw topped certain milestones, Grimes said.
Iconix would also likely get between 7% and 14% of film merchandise tie-ins, such as T-shirts or toys, he said.
"Peanuts has a huge growth ahead of it," said Cliff Greenberg, who manages $5.5 billion in the Baron Small Cap fund and has been buying shares of Iconix on dips in expectations that it will continue to expand its entertainment division.
Chris Terry, an analyst at Dallas-based Hodges Capital, said his firm began buying shares approximately six months ago on expectations that the Peanuts license will pay off.
There is caution, however, in some quarters.
The lack of clear numbers regarding Peanuts' contribution gives Steve Marotta, an analyst at C.L. King & Associates who covers the stock, pause.
"The company is a bit of black box," he said. He estimates that Peanuts is the most important individual brand to the company, followed by Mossimo and Candie's.
Nevertheless, he has a "buy" rating on the stock.
The shares trade at a price/earnings ratio of 15.3, a full point lower than the 16.7 average among apparel companies.
Eric Beder, an analyst at Brean Capital, said he has a "hold" rating because Iconix has not bought any new brands this year after typically adding two or three annually.
"The company doesn't usually beat by much and usually never misses," he said. "But right now it's a question of finding the right deals and that isn't happening."