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Iconix Brand Group (ICON)

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We are downgrading our recommendation on Iconix Brand Group (ICON) to Underperform from Neutral, following the disappointing first quarter 2012 results. Iconix's first quarter earnings of $0.43 per share lagged the Zacks Consensus Estimate by $0.03 per share and the prior-year quarter earnings by $0.02 per share, due to revenue declines.

Revenues declined 4% primarily due to underperformance of men's brands of Rocawear, Ecko and Ed Hardy. The weak demand in these brands also led to a cut in the company's revenue and earnings guidance. Further, the transition of Royal Velvet brand to J.C. Penney acted as a significant driver of the decline in the quarter.

Over the last five years, Iconix's shares have traded in the range of 7.0x to 27.4x trailing 12-month earnings. Our target price of $15.00 is based on approximately 8.9x our 2012 earnings estimate.




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