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Technology Stocks : THQ,Inc. (THQI) -- Ignore unavailable to you. Want to Upgrade?

To: Steve Research who wrote (7641)	8/25/1998 3:15:00 AM
From: Marc Newman	Read Replies (1) \| Respond to of 14266

Here are some pieces of the Furman Selz re-it, along with lists of cable Nielson ratings, top toy sellers, and a comparison of the videogame industry. Note especially the comments about it being the top pick in FS's universe. (FIRST CALL) SELZ: Stock Price Weakness Accentuates Compelling Investment SELZ: Stock Price Weakness Accentuates Compelling Investment Opportunity 10:55am EDT 19-Aug-98 Furman Selz (Stewart A. Halpern (212) 309-8503) THQI ENTERTAINMENT THQ Inc. (OTC: 28 1/16-T HQI) Stock Price Weakness Accentuates Compelling Investment Opportunity STRONG BUY 52-Week Range: 35-9 EARNINGS PER SHARE Daily Volume(000s): 253 1996 1997 1998E 1999E Shares O/S(mil): 7.8 Mar ($0.06) $0.12 $0.86A NA Market Cap(mil): $221 Jun $0.10 $0.14 $0.37A NA Avg. ROE 1998E: 59.4% Sep $0.13 $0.20 $0.27 NA EPS Growth: 41% Dec $0.19 $0.84 $0.75 NA Debt/Capital: 0% Year $0.39 $1.35 $2.24 $2.68 Book Value/Share: $5.18 P/E 72.0x 20.8 12.5x 10.5x Dividend/Yield: $0.00/0.0% Insider Holdings: 6% Note: Numbers may not add because of rounding or changes in S & P 500: 1101.20 share count. Results exclude impact of one- time charge in 2Q98. * * THQI shares' greater-than-the-market decline over the past 2 1/2 weeks accentuates what we already viewed to be an outstanding investment opportunity: * since 7/24/98, THQI shares have declined 15.9% vs. 3.4% and 3.6% declines in the S&P 500 and Russell 1000, respectively; in response to any concern over the possible overhang from the convertible debt financing THQ withdrew last week due to market conditions, we reiterate our confidence that the application of proceeds from any such future financing would make the deal accretive within the first 12 months. Television ratings offer evidence that the WWF license (which THQ has for 10- years beginning in November '99) is as powerful, if not more so, as THQ's current WCW license (which expires at the end of June '99): THE TOP 10 SHOWS ON CABLE TELEVISION (WEEK ENDED AUGUST 9, 1998) Cable Households Rank Program Network Viewing (mm) 1 Jerry Seinfeld on Broadway HBO 4.0 2 WWF Wrestling (Mon. 10pm) USA 3.7 3 Contact HBO 3.4 4 WWF Wrestling (Mon. 9pm) USA 3.3 5 Nascar Winston Cup ESPN 3.3 6 World Championship Wrestling (Mon 10pm) TNT 3.2 7 WWF Special USA 3.1 8 World Championship Wrestling (Mon 8pm) TNT 3.1 9 Pacific Blue USA 3.0 9 World Championship Wrestling (Mon 9pm) TNT 3.0 Source: Nielsen Media Research, The New York Times THQ's partnership with the WWF toy licensee should provide additional benefits from coordination of sales and marketing efforts. Note the popularity of WWF action figure toys, as well as two other properties for which THQ has game rights - Rugrats (PlayStation, Nintendo 64 and GameBoy) and Star Wars (GameBoy only): TOP-SELLING TOYS Last Consecutive Rank Toy Manufacturer Month Months on List 1 Spice Girls Dolls Galoob 2 4 2 WWF Figures Jakks Pacific 3 5 3 Super Soakers Larami 6 3 4 Power Rangers in Space Bandai 1 4 5 Spider-Man Figures Toy Biz - 1 6 Bead Blast Barbie Mattel - 1 7 Godzilla Figures Trendmasters - 1 8 Star Wars Figures Hasbro 5 34 9 Rugrats Figures Mattel - 1 10 Godzilla Remote Control Toy Biz - 1 11 Transformers Beast Wars Hasbro 9 4 12 X-Men Figures Toy Biz - 1 13 Beetleborgs Bandai 12 3 14 Batman Figures Hasbro 14 76 15 Crazy Daisy Fisher-Price - 1 Source: The Toy Book's Monthly Survey of Top-Selling Toys, July 1998 THQ: The Top Pick in Our Universe this stock is the top pick in our universe, based on: the stock's valuation relative to our target prices; the company's track record of executing its operating plan and exceeding financial expectations; prospects for continued strong top and bottom line growth; and the high level of confidence we have in THQ's ability to meet or exceed our '98 and '99 estimates; even in a group which we believe to be generally undervalued, THQ stands out as being dramatically undervalued: COMPARISON OF TRADING VALUES FOR SELECTED INTERACTIVE ENTERTAINMENT STOCKS FS Equity CY97 CY98E CY98E CY99E CY99E Company Rating Value EPS EPS PE EPS PE Activision (OTC: $11.25-ATVI) H $222.3 $0.57 $0.41 27.2x $0.75 15.1x Electronic Arts (OTC: $53.44-ERTS) NR $3,366.3 $1.13 $1.56 34.3x $1.95 27.4x GT Interactive (OTC: $6-GTIS) B $400.7 $0.51 $0.58 10.4x $0.73 8.2x Interplay (OTC: $5.75-IPLY) NR $71.0 NA $0.43 13.4x $0.59 9.7x Midway Games (NYSE: $15.31-MWY) SB $589.5 $1.12 $1.12 13.7x $1.50 10.2x THQ (OTC: $28.06-THQI) SB $218.9 $1.35 $2.24 12.5x $2.68 10.5x Source: Company reports, FirstCall (ERTS, IPLY), ING Baring Furman Selz est. Prices as of 8/18/98 close. We Reiterate Our STRONG BUY Recommendation on THQI Shares our Cal '98 price target remains at $42 per share (18.8x our '98 eps estimate); our Cal '99 price target remains at $54 per share (20.1x our '99 eps estimate). Reminder: 3-for-2 Stock Split Distribution Scheduled for August 24 to Holders of Record as of August 20