Another analyst opinion
Price: $28 1/8
Price Objective: $35
Estimates (Dec) 1998A 1999E 2000E
EPS: $1.07 $1.50 $1.65 -$1.70
P/E: 26.3x 18.8x 16.8x
EPS Change (YoY): 33.6% 7.0%
Consensus EPS: $1.42 $1.56
(First Call: 22-Jun-1999)
Q3 EPS (Sept): $0.37 $0.43
Cash Flow/Share: $1.93 $2.68 $3.15
Price/Cash Flow: 14.6x 10.5x 8.9x
Dividend Rate: $0.21 $0.24 $0.24
Dividend Yield: 0.8% 1.0% 1.0%
Opinion & Financial Data
Investment Opinion: B-1-1-7
Mkt. Value / Shares Outstanding (mn): $5,765.6 / 205
Book Value/Share (Jun-1999): $8.713
Price/Book Ratio: 2.7x
ROE 1999E Average: 17.0%
LT Liability % of Capital: 18.5%
Est. 5 Year EPS Growth: 14.0%
Stock Data
52-Week Range: $37-$18 11/16
Symbol / Exchange: HAS / NYSE
· Financial results prove that sell off on Star
Wars was overdone. Hasbro handily exceed
2Q99 estimates, reporting $0.16 vs. $0.03, well
above consensus estimates of $0.10.
· Strong business trends should persist through
1999; accordingly, we are raising 1999E from
$1.43 to $1.50. Given our belief that Hasbro
can deliver double digit growth in 2000, we
are also raising 2000E from $1.53 to a range of
$1.65 – $1.70.
· Star Wars may be disappointing for some
licensees but NOT for Hasbro.
Fundamental Highlights:
· Conference call was exceedingly positive. In
addition to Star Wars and Tiger, the core
business is strong. Interactive roughly
doubled in the quarter, board games were
stable and handheld increased.
· Sales were up 53% to $875 MM compared
with our $761 MM estimate.
· Accounts receivables up 41% and below sales.
Historically, 2Q A/R exceed sales in dollar
terms. This would suggest product is moving
at retail.
Hasbro Inc – 16 July 1999
2
What Has Changed?
Hasbro reported 2Q99 results that exceeded our estimate
of $0.10 and the whisper estimate of $0.12-$0.13. Sales
totaled $875 million compared with $572 million in the
prior year representing a gain of 53%. Earnings of $0.16
per share compared favorably with the $0.03 reported in
2Q98 and represented more than a five-fold increase.
Star Wars product drove the upside earnings surprise,
although Tiger and Interactive also performed strongly.
We estimate that the company sold more than $200 MM
worth of Star Wars merchandise in the quarter. Sell
through at retail totaled $170 MM and advertising has yet
to begin in earnest. The rate of action figure sell through
over the past three weeks has exceeded the initial rate
excluding "midnight madness," and the company has
exceeded projections every week since launch. 11 million
action figures have been sold in the first nine week. This
large "installed" base bodes well for sales of higher priced
vehicles at Christmas. Understandably there are some
weak spots in the line, specifically Micro Machines, but on
balance the demand is broad based.
13 new characters have been shipped bringing the total to
31. The most significant upcoming release should be
Tiger's Interactive Yoda, which will be introduced in late
4Q, although there will be multiple new products coming
to retail in time for Christmas.
In the international markets, the rollout of Star Wars is just
beginning. The initial experience in countries where the
movie is out (Japan, Australia, New Zealand, Mexico, UK)
has been very positive and international sales of Star Wars
product will likely exceed expectations. European rollouts
will occur during the fall. Management raised its
expectation for Star Wars sales from $500 MM to $600-
$650 MM. This compares with our $600 MM estimate.
Besides Star Wars and Furby, Hasbro's core line performed
well. Total games increased led by a doubling in
interactive, good growth in handheld games and stable
sales of traditional board games. Other boys properties
such as Action Man, Transformers and Batman did well.
Thus, the strength at Hasbro is broad based.
The company showed good operating leverage as the
operating margin expanded to 6.7% from 2.1%. This was
due to an increase in the gross margin to 60.5% from
56.8%. Operating income increased to $58.2 million from
$12.3 million in the prior year.
The year 2000 line up is solid and, taken together with cost
savings, should enable the company to report 10-15%
earnings growth on low single digit revenue growth. The
company has a number of new properties lined up that
should help offset a decline in sales of Star Wars product.
The roster includes Pokemon, Titan AE, Action Man in the
US and the new NASCAR children's TV series. In the
core business, we would expect Interactive to grow to
$450 million from $325 million and traditional board
games to increase low single digits based on the company's
line of interactive board games.
We raised our sales and earnings estimates. For 1999, we
are forecasting sales of $4.25 billion and earnings of $1.50
per share representing gains of 29% and 40%. Earnings
growth in the second half is forecast to be in the mid-20%
range. For 2000, we are forecasting revenue of $4.35
billion and earnings of $1.65-$1.70 per share. Our
previous earnings estimates had been $1.43 and $1.53,
respectively.
We believe that today's earnings report proves sales of Star
Wars products from Hasbro is strong. Thus, we believe
that the sell-off in the stock on these concerns was
unwarranted. Accordingly, the common stock should be
able to re-trace lost ground, in our opinion, and we would
be buying the stock with a 12-month price objective in the
mid-30's, or roughly 20x 2000E EPS. This represents the
high end of Hasbro's historical multiple range, but a 30%
discount to the market. |
