Buying Opportunity for Iconix

Iconix Brand Group, Inc. (ICON - Analyst Report) shares are down over 34 percent year-to-date because of concerns about the soft economy and the company reducing its sales and earnings guidance for the last three quarters of 2008. At its current valuation, ICON’s stock price more than discounts the soft economy and reduced guidance and ignores the company’s long-term growth potential.

We view the sell-off as a buying opportunity. Iconix Brand Group should deliver solid long-term earnings growth thanks to its highly profitable business model, diversified portfolio of brands, and opportunities for expansion both domestically and internationally.

The company issued lower sales and earnings guidance for 2008. Iconix previously baked in additional $30 million in revenue from acquisitions. In our last report, we cautioned that those acquisitions may not take place. We are lowering our estimates for 2008 and 2009 accordingly. Our target price is reduced from $21.50 to $19 to reflect our lower EPS estimates.

ICON shares are currently trading at 10.8x our 2008 EPS estimate and 9.0x 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 company’s 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. Our target price is $19, which is 16x our 2008 EPS estimate.

Read the full analyst report on ICON