Despite continuing to deliver robust revenue and earnings growth, Iconix Brand Group (ICON) shares have sold-off over 26% year-to-date. The sell-off is due to weak consumer spending coupled with problems in the credit markets, which could prevent Iconix from making additional acquisitions.
The company is maintaining its previously issued 2008 guidance of revenue in the range of $250 million to $260 million and diluted earnings per share of between $1.35 and $1.40. This is predicated on acquiring an additional $30 million of acquisition revenue that falls into the remainder of this year. If the company is unable to close those necessary acquisitions, it will fall short of consensus EPS estimates.
We are lowering our estimates to reflect the growing chance that Iconix will not be able to meet its current outlook. Nevertheless, the companyâs long-term growth story remains intact, and we view the current sell-off as a buying opportunity. We are upgrading the stock from Hold to Buy.
ICON shares are currently trading at 10.8x our 2008 EPS estimate and 9.4x our 2009 EPS estimate. The stock trades at a discount to its peers and its long-term earnings growth rate. We think the stock could trade at a premium multiple thanks to the companyâs highly profitable business model and strong cash flow, but current market conditions make that scenario quite difficult.
That said, we think the stock is cheap, and it should be able to support a forward P/E multiple of As a result, we think the stock will track the overall market for the next six months. Our target price is $21.50, which is 16x our 2008 EPS estimate.
Read the full analyst report on ICON.
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