Xcel Brands, Inc. (XELB: Nasdaq) is a consumer products company with a twist. The company has artfully deployed visual media to engage customers with its portfolio of consumer lifestyle brands, including clothing, footwear, jewelry, furniture, and home accents. Indeed, the Company seems to have perfected the use of live streaming and interactive media in an omni-channel marketing strategy, providing Xcel with a strong advantage in a market well populated by competitors. Consumers are treated to excellent products from quality brands on venues that engage and entertain. The impressive portfolio of brands includes Isaac Mizrahi, Halston, Lori Goldstein, C Wonder, and Judith Ripka. The company also offers Longaberger branded products for the kitchen and dining as well as home furnishings and decor.
In May 2022, the company sold a majority share in its Isaac Mizrahi brand and used some of the proceeds to pay off all debt. With a debt-free balance sheet and increased cash resources, the company is in a position to move aggressively in acquiring new brands or investing in its existing portfolio. With more designers than ever seeking brand partners, availability of investment capital is timely for closing deals. Indeed, management hints the potential for new joint ventures with young designers as well as several projects underway for fresh interactive television programming.
Importantly, the Mizrahi brand will be an important part of future growth as the company retained a minority position in the brand and forged a new license for women’s apparel. Management is confident in top-line expansion and a return to profitability in the next year.
We initiated coverage of XELB with a Speculative Buy rating and $4.80 target price for the next six months. Based on the trading multiples for comparable public companies we believe the stock is deeply undervalued relative to its peers. Our price target corresponds to an estimated intrinsic market value of the company implied by the recent Mizrahi transaction. Indeed, that deal suggests the current market capitalization is barely more than the value of the retained portion of Mizrahi brand asset. From this perspective, at the current share price investors are paying for just the remaining Mizrahi brand asset and getting the rest of the portfolio for free.
We believe the company’s stock price could
get a reset as investors come to fully appreciate the benefits of monetizing
the company’s investment in the Isaac Mizrahi brand. The proceeds have been used reduce risk by deleveraging
the balance sheet - with enough cash left over for additional
growth investments. The June 2022
quarter report will reveal the company’s stronger financial profile with no
debt and higher cash balance. Also,
announcements regarding brand or product initiatives could service as catalysts
for investor sentiment.
Neither the author of the Small Cap Strategist web
log, Crystal Equity Research nor its affiliates have a beneficial interest in
the companies mentioned herein.
Crystal Equity
Research covers XELB under the CER Reports research series for issuer sponsored
research with a has a Speculative Buy rating.
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