On Jun 12, we upgraded our recommendation on Iconix Brand Group Inc. (ICON) to Outperform from Neutral on the back of solid first quarter 2013 results and enhanced guidance for 2013.
Why the Upgrade?
On Apr 24, Iconix reported impressive first quarter 2013 earnings of 54 cents per share beating last year’s result by 26% and the Zacks Consensus Estimate by 5.9% on the back of top-line growth. In fact, Iconix has surpassed the Zacks Consensus Estimate in the past four quarters and delivered an average surprise of 7.19%.
Iconix’s revenues in the quarter surged 19% year over year and surpassed the Zacks Consensus Estimate by 4%. The upswing was driven by a spate of accretive acquisitions made in the recent past.
Following the solid first quarter 2013 earnings, Iconix raised its 2013 adjusted earnings guidance to $2.10-$2.20 per share from the previously announced range of $2.05–$2.15 per share.
Following the release of its first quarter results, the Zacks Consensus Estimate for 2013 has gone up 1.9% to $2.17 per share. Moreover, the Zacks Consensus Estimate for 2014 has also climbed 6.3% to $2.37 per share.
Why the Strong Positive Bias on the Company?
Iconix’s overall growth story looks compelling. This clothing brand licensing company has been aggressively acquiring brands and entering into joint ventures to strengthen its portfolio.
Most recently in May 2013, Iconix acquired the remaining 49% interest in IP Holdings Unltd LLC ("IPHU") that manufactures and markets fashion and lifestyle products in the U.S. and internationally. Iconix now owns brands such as Ecko Unltd. and Marc Ecko Cut & Sew. Iconix had previously acquired a 51% stake in IP Holdings Unltd LLC in 2009.
In late-Feb 2013, Iconix acquired the renowned lifestyle brand Lee Cooper for $72 million in cash through the company's Luxembourg subsidiary, Iconix Luxembourg Holdings Sarl. Earlier in the same month, Iconix formed a joint venture with Buffalo International ULC to acquire a 51% interest in the latter’s Buffalo David Bitton brand for $76.5 million in cash.
In early-Dec 2012, Iconix acquired the renowned football brand Umbro from Nike, Inc. (NKE) in order to add an iconic brand to its portfolio.
We remain impressed with Iconix’s strategic acquisitions and consistent expansion of licensing agreements. Iconix expects to explore additional opportunities and enhance its portfolio with more iconic brands in the upcoming quarters. Iconix expects to deliver over 20% revenue and earnings per share growth for 2013.
Other Stocks to Consider
Iconix holds a Zacks Rank #1 (Strong Buy). Other stocks in the consumer discretionary sector that are performing well and are therefore worth considering include Hanesbrands Inc (HBI) which holds a Zacks Rank #1 (Strong Buy) and Joe’s Jeans Inc (JOEZ) which carries a Zacks Rank #2 (Buy).
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