Offered up lemons by Wall Street in the past week, Marvel Enterprises has decided to make lemonade.
The comic-character emporium on Monday announced plans to buy back some $100 million of its own stock over the next 18 months in a bid to boost its share value, which has remained largely dormant in the wake of “Spider-Man 2’s” box office boom.
Marvel’s board authorized the common stock repurchase program, which gives the company the right to buy 5% (at current prices) of its outstanding shares from time to time in the open market or through privately negotiated transactions over the next 18 months.
The decision to gobble up its own stock comes as many larger media firms such as Disney, Viacom and Comcast all contemplate using their increasingly plentiful cash piles to either buy back what they see as undervalued shares or else return cash directly to shareholders in the form of dividends.
Last month, Marvel cleared its books of all remaining long-term debt and now has more than $150 million in cash and equivalents on its balance sheet. By the end of the year, its cash balance would exceed $200 million without the buyback, company said.
“Robust cash flows and surplus cash are two attractive byproducts of Marvel’s unique, risk-averse, business model,” prexy and CEO Allen Lipson said in a statement.
Marvel stock was trading at $20.69 on “Spider-Man 2’s” June 30 opening but quickly sank some 20% as investors more or less tossed off the wall-crawling sequel’s box office success as a non-event for the comic licenser, whose upside in the film is limited to around 5% of the gross.
Stock dips 1%
Stock staged a brief recovery late last week but fell again Monday by 1% to close at $16.80 in spite of the buyback announcement.
And even while the company’s sales prospects for Spidey-related merchandise looks strong, some Wall Street analysts recently retooled their earnings forecast downward.
Despite Marvel’s proven success in the past few years of building a high margin and relatively low-risk licensing business off the back of its catalog of superhero characters, the company’s stock has been savaged in recent days precisely because its current outing with Sony has proved so potent. Investors fear that will make this year’s earnings difficult to beat next year.
Another reason for investors’ recent reticence about Marvel despite its strong movie licensing run is a bout of stock sales by key execs like Avi Arad back in May, which many investors took as a vote of no confidence in future growth prospects.
Company noted on Monday its largest shareholder, vice chairman Isaac Perlmutter, and Marvel Studios’ CEO Arad, have each agreed not to sell any shares while the current repurchase program is in place.
While large share buybacks typically increase a company’s value over the long term, analysts sometimes fret that it signals management has run out of internal investment ideas. The company counters that it simply reflects that the stock is undervalued and represents the best available investment return.
Marvel’s library contains some 4,700 proprietary characters, which it licenses out for movies, toys, snack foods, videogames and TV series.