One Stylish, Spring-Loaded Name

 | Jan 13, 2012 | 12:00 PM EST
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  • Buy 100 shares of ICON at $17.93 / share

This commentary originally appeared Jan. 13 at 10 a.m. EST on Real Money Pro -- the ultimate traders' resource for actionable trade ideas and in-depth market analysis. Click here to learn more.

Until the middle of 2005, the company that produced Candies footwear -- which some of you ladies may be wearing right now -- went by that precise name. The company then metamorphosed from a manufacturing company into a brand-licensing firm, and renamed itself Iconix (ICON).

Iconix owns a portfolio of well-known names that run from mass market right through aspirational luxury. Here is a list of their brands taken directly from the company's website.

Iconix (ICON) -- Brands

The company has posted excellent growth, both in revenue and in earnings, since converting its business model. Here are Iconix's numbers from 2005 through 2011 (excluding non-recurring items).

Iconix (ICON) -- Growth, 2005 to 2011

The large jump in book value from 2005 to 2006 came from a well-timed secondary offering, when the shares were selling for a high multiple. The 2008-to-2009 recession temporarily interrupted the company's growth, but all metrics bounced back nicely with the general economy.

Last autumn's big market selloff knocked Iconix shares down from $26.05 to $14.36 -- and this despite the lack of any bad company-specific news. Shares have been in an uptrend since their final bottom in late November, and closed Thursday at $17.93.

Iconix (ICON) -- Daily

Iconix sold for an average price-to-earnings ratio of 15.2x from 2005 to 2010, yet it's being offered at a tad under 10.8x last year's estimate. If the 2012 consensus view of $1.85 is on the mark, the forward multiple is an even lower 9.7x.

This isn't a home-run kind of stock, but I see no reason why Iconix can't trade for 13x earnings at some point again in 2012. That leads me to a target price of more than $24. If 34% is all it does, I'll be satisfied that.

Is that a reasonable goal? Why not? Iconix peaked at $24.50 in 2007, when it earned just $1 per share. I've already noted the stock's 52-week high of $26.05. Value Line assumes a normalized 15x multiple, and EPS of $2.60 within three to five years. Over that longer-term horizon, Value Line sees a $30-to-$45 range.

Traders might want to buy now, with an exit near $24. Investors looking for long-term gains, meanwhile, could see a double or better if they show some patience.



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