Bill Gunderson

About the Author Bill Gunderson

Bill Gunderson is the CEO and Chief Market Strategist of Gunderson Capital Managment in San Diego, CA. He is also a professional money manager, former research analyst, author of Best Stocks Now, and developer of the Best Stocks Now smartphone app. He offers four free weeks to his weekly Best Stocks Now to Seeking Alpha readers. http://www.pwstreet.com He also hosts a daily stock market radio show on AM1000 KCEO from 7am-8am. http://www.kceoradio.com Bill has appeared on the Fox Business Channel and on Bloomberg radio numerous times. He has been published in Barron's, Forbes, TheStreet.com and numerous other publications i.e. Los Angeles Business Journal, San Diego Union Tribune, Phoenix Business Journal, Salem News, Rochester Business Journal, and many others.

Hasbro, Inc.: Not Just A Toy Story (HAS)

Rhode Island-based Hasbro, Inc. (NASDAQ:HAS) has been around since 1923, and is a company name that most parents and their kids recognize. Hasbro makes toys. Whereas competitor Mattel, Inc. (NASDAQ:MAT) and its Barbie franchise in known for its “girl product” focus, Hasbro is known for its more male-orientated toys, such as the Transformers and G.I. Joe action figure line and all things Nerf. But it also markets under many more beloved brands such as: Littlest Pet Shop, Magic: The Gathering, Monopoly, My Little Pony, and Play-Doh.

Hasbro is not just a toy story, it’s a brand story. The company is successfully leveraging its extensive brand portfolio globally and converting it into high-margin growth opportunities in its Entertainment and Licensing segment. If you pardon the pun, Hasbro is a company in “Transformation”.

 

Hasbro just reported a blow-out first quarter, one if its best in years, and the stock price traded up 12% on the results, hitting a new record high.

Analysts had been expecting the strong dollar to weigh on results as it has with other multinationals, but sales still climbed 5% during the quarter to $714 million versus the $660 million consensus. And earnings came in at 21 cents per share, which was a whopping 13 cents ahead of what analysts were expecting.

Forex did negatively impact both revenues and earnings for the quarter, but favorable foreign exchange product cost hedges helped mitigate the effect somewhat. But absent a negative $62.6 million impact from foreign exchange, first-quarter revenues would have grown an impressive 14%.

First-Quarter 2015 Major Segment Performance

Net Revenues ($ Millions) Operating Profit ($ Millions)
Q1 2015 Q1 2014 % Change Q1 2015 Q1 2014 % Change
U.S. and Canada $345.7 $337.7 +2% $41.4 $35.8 +16%
International $305.7 $305.5 $1.9 $2.4 -21%
Entertainment and Licensing $60.6 $34.9 +74% $16.4 $6.0 +174%

The sale of toys for boys were up 10%, and were a main driver of the results, lifted by growth in the Transformers, Marvel, and Nerf licensed products. Its game and puzzle business also reported a 7% rise in revenues. And the preschool category saw revenue growth of 22%, thanks to the Play-Doh and Playskool Heroes brands. Despite the strong dollar, international and emerging market demand was quite strong.

The growth story at Hasbro is not its physical toy sales, but the rapid expansion of its high-margin Entertainment and Licensing revenues. The company’s Entertainment and Licensing business now represents 30% of its operating profits. In particular, the licensing revenues for My Little Pony and Transformers were particularly robust. The company also inked a multi-year digital streaming deal for Hasbro Studios television programming.

First-Quarter 2015 Product Category Performance

Net Revenues ($ Millions)
Q1 2015 Q1 2014 % Change
Boys $272.6 $247.8 +10%
Games $235.6 $220.5 +7%
Girls $117.1 $138.7 -16%
Preschool $88.1 $72.5 +22%

Although the company’s girls categories were not as strong, declining 16%, Hasbro struck a lucrative deal with Disney last year. Disney’s Frozen and Princess franchise has been taking the doll market by storm, leaving Mattel’s Barbie in the dust. This quarter’s weakness was attributable to declines in Furby, Furreal Friends and Easy Bake products.

The other “cool thing” about the Hasbro story is the company’s generous dividend. The stock’s dividend yield is close to 3%. Hasbro’s growth story and dividend yield make this a stock to own, and I am long the stock.

So let’s take a closer look at Hasbro stock using the Best Stocks Now app.

(Data from Best Stocks Now app)

Hasbro is a Mid Cap stock in the Leisure sector, with a market capitalization of $8.2 billion. Its risk profile is Moderate. The company generates annual revenues of $4.3 billion.

(Data from Best Stocks Now app)

On a Price-to-Earnings basis, Hasbro is not a cheap stock, with a trailing PE of 20 and a forward PE of 17. And it just got more expensive on the surprise upside results. But the company’s growth prospects are underestimated at only 10.7%. Therefore, it receives a Value Grade of D+. But as mentioned, the stock pays a nice dividend of almost 3%, which pays investors to stick around as the growth story “Transformation” kicks in.

(Data from Best Stocks Now app)

Whereas investors used to view Hasbro as just a physical toy story in a digital age, that perception has changed as the power of the licensing and brand franchise is being recognized. The stock has gained more than 25% over the last year. And before the recent upside move, the stock was already up 21% YTD.

(Data from Best Stocks Now app)

Out of the 4000+ stocks in the Gunderson Best Stocks Now universe, Hasbro stock ranks #121. Its stock grade is an A-, which gives it a Buy rating.

Hasbro is an underappreciated growth story that also pays a nice dividend. Its global toy franchise is not immune to the effects of the strong dollar, but a strong brand is a nice counter for a strong dollar.

  • Highway ! Road

    absent a negative $62.6 million impact from foreign exchange… Gee when money was offshore they literally bragged. The earnings were about as bogus as Yellen’s claim she saw the housing problem. Has Wizards of the Coast CEO named to Federal Reserve branch board Seattle Branch.. Poorly run. Only one on CC questioned Foreign Exchange was Goldman…. With Kissinger and Associates on board and Paul Wolfowitz ex board member and 12 Chinese factories this stock is in big big trouble… Pushed non GAAP accounting to the criminal stage.

    don’t take my word ISS gave em a big 10 on the worst… and buying some bogus most ethical award……

    Corporate Governance Hasbro
    Inc.’s ISS Governance QuickScore as of Apr 1, 2015 is 10. The pillar
    scores are Audit: 2; Board: 9; Shareholder Rights: 7; Compensation: 10.Brought to you by Institutional Shareholder Services (ISS)

    PT Barnum
    There’s a sucker born every minute