Thanks to Joe and all for your informative posts. I'm a happy TAVA shareholder because of the tremendous research on the part of the people that post here.
OFF TOPIC - I apologize for the following post about a different company but I think it will be worth your time to take a look at the following company. I for one would really appreciate your opinions on the future of this company and it's stock. Jakks Pacific (JAKK)
Thanks in advance.
Dave
The following is a recent article in the WSJ
The Wall Street Journal -- February 25, 1998
THE WALL STREET JOURNAL / CALIFORNIA
---
Heard in California:
Strong Growth May Help Jakks
Capture Wall Street's Attention
----
By Mark Veverka
Staff Reporter of The Wall Street Journal
Jakks Pacific is getting ready to rumble.
The Malibu-based toy maker has built a formidable business
around its line of wrestling action figures licensed by the
World Wrestling Federation. Its stock, however, has been on the
ropes, hanging around $8 since Jakks went public in 1996 at
$6.25. That could soon change.
The company, started in 1995 by Chief Executive Jack Friedman,
has a successful build-through-acquisition strategy. The fruits
of management's labor are starting to hit both the top and
bottom lines. Major retailers, such as Toys 'R' Us, are
promoting Jakks's lines in their stores, and future acquisitions
are likely, fans say.
No major brokerage houses follow this small company, which is
the reason investors most often cite for its lackluster stock
performance. But investors and analysts say a number of firms
are poised to add Jakks to their equity coverage.
"This company is severely undervalued," says Russell Cleveland,
president of Dallas-based Renaissance Capital Management, which
holds convertible notes worth slightly more than one million
Jakks shares. "Sooner or later, we'll see some [buy]
recommendations" from Wall Street analysts.
Jakks's trailing price/earnings ratio, at 15, is well below the
multiples commanded by other toy makers, such as Mattel at 46,
or Hasbro at 35.
Thus far, analyst David Keiter of Joseph Charles & Associates in
West Palm Beach, Fla., which was the lead manager on the
company's initial public offering, is the only brokerage-firm
analyst covering Jakks. He rates it a "buy" without a price
target. And just two weeks ago, James Faucette and John Raaf of
small-cap research firm Red Chip Review in Portland, Ore.,
initiated coverage with a "buy" recommendation and a 12-month
target of $16.
"We definitely like the stock," says Mr. Faucette. "It's a very,
very good company."
A glance at the numbers may help explain why analysts are
starting to pay attention to Jakks. For starters, the company
reported last Thursday that sales more than tripled to $41.9
million in 1997, from $12.1 million in 1996. Jakks projects
sales will continue to climb to around $72 million by the end of
this year -- and that doesn't take into account any possible
acquisitions in 1998. At Renaissance Capital Management, Senior
Vice President Bob Pearson says his firm's revenue estimates for
Jakks are even higher, though he declines to be specific.
Earnings for the year more than doubled to $2.8 million, or 52
cents a diluted share, from $1.2 million, or 34 cents a share,
for 1996. Mr. Faucette at Red Chip pegs 1998 earnings at about
99 cents a diluted share and predicts that earnings will grow
handsomely at 43% annually over the next three years.
A chunk of those profits will come from two new brands: Remco
(toy trucks) and Child Guidance (educational preschool toys),
which were acquired from New York-based Azrah Hamway
International for $13 million last October.
The two brands, which racked up about $20 million in 1997 sales,
accounted for only $1 million in year-end earnings for Jakks
because they were bought late in the year. But Mr. Friedman, a
34-year industry veteran, says profits from those companies
should begin to make a greater impact by April.
He says his consolidation strategy squeezes additional profit
from existing companies by stripping away their excess overhead.
Because Jakks already has in place administrative, distribution
and marketing operations, says Mr. Friedman, it can eliminate
duplicate operations from the companies it buys.
Another facet of Jakks's acquisitions strategy is Mr. Friedman's
tendency to buy toy brands that are, in industry parlance,
"evergreen," says Red Chip's Mr. Faucette. These toys tend to be
popular throughout most of the year and are slow to go out of
style. The pro-wrestling figures, for example, have been growing
in popularity for 15 years, fueled by soaring television
ratings. And even in the video-game age, kids still play with
toy dump trucks, he says.
"They're not going out and trying to hit home runs" each year by
launching products tied to the latest craze, Mr. Faucette adds.
Toy makers that link their fates to such social phenomena tend
to perform rather unevenly from year to year, causing a lot of
financial instability, he says. Jakks strayed from that approach
with the now-fading Power Rangers action figures, tied to a TV
show of the same name. That brand accounts for just 3% of sales.
Of course, there are still risks. The toy industry, in general,
is cyclical and can be volatile. And while the company has
demonstrated the ability to acquire good companies, there is
always the chance that any future buyouts could go bad. In
addition, most of Jakks's products are manufactured in China,
which could become vulnerable to political uncertainties.
But Jakks still has an advantage over other toy makers: Its
products are usually priced much lower than similar toys sold by
industry behemoths, such as Mattel, Hasbro, Tyco and Kenner, Mr.
Faucette says.
That distinction makes them popular with major retailers,
including Toys 'R' Us, Wal-Mart, Kmart and Target, which can
make more money selling Jakks's brands than those of many larger
toy companies. Retailers' margins are fatter for Jakks's Hulk
Hogan dolls than they are for Mattel's Barbies, Mr. Friedman
says. "They make money on us," he says, "and we do fine."
In fact, Jakks's World Wrestling Federation line will be
featured in a promotional campaign by Toys 'R' Us in March, a
Toys 'R' Us spokeswoman says. Wrestling toys are "what our
customers want," she says.
And the wrestling line could get a big boost later this year if
the company succeeds at winning licenses to make Mike Tyson
action figures, Mr. Friedman says. The suspended boxer, a
onetime heavyweight champion, hopes to resurrect his tarnished
career by jumping into a different ring -- the wacky world of
professional wrestling. "We don't have a signed deal, but we're
working on it," Mr. Friedman says.
But with or without Mr. Tyson, Renaissance's Mr. Pearson thinks
Jakks has the makings of a champion. "We kind of think its the
best-kept secret" on Wall Street, he says. |
