Through most of 2011, the share price for game and toy manufacturer Hasbro (HAS)
has disappointed. The company has produced revenue and income growth results but those numbers have missed expectations. Investors, though, may find a hidden value play in the stock.
Hasbro holds a portfolio of well-known brands, including GI Joe, Transformers, Tonka and Monopoly. The company manufactures and wholesales toys and games under the different brands as well as licensing the brands for to entertainment and lifestyle companies.
About 55 percent of revenues are generated in the company's U.S. and Canada segment, 40 percent of sales are from the international segment, and the balance of 15 percent comes from the entertainment and licensing segment. The entertainment and licensing segment produces operating profit margins at almost twice the rate of the other two segments.
For the 2011 third quarter, Hasbro reported net income of $1.27 per share, up from $1.09 a year earlier. However, for the first nine months of 2011, net income was $1.78 per share, only 2 cents better than for the first three quarters of 2010.
The consensus estimate for the holiday-focused fourth quarter is earnings of $1.22 per share, compared to 99 cents in 2010. The individual Wall Street estimates range from $1.06 to $1.36, indicating a lot of uncertainty over how the quarter will work out for the company.
The 2011 third quarter was the third consecutive quarter Hasbro missed the Wall Street consensus for net earnings. Company management has responded with an extensive plan to exploit the profit potential of the brands for better rates of growth.
Published intermediate goals include compound annual revenue growth of 5 percent or greater and increasing operating margin to greater than 15 percent. Operating margin has increased to 14.7 percent in 2010 from about 12 percent in 2006.
Hasbro has aggressively returned cash to shareholders over the last five years, buying back more than $2 billion worth of stock and increasing the annual dividend to $1.20 per share from 45 cents. The dividend yield on Hasbro remains over 3 percent.
Recently, Wedbush Securities analyst Edward Woo reiterated his outperform rating on HAS, noting the stock’s current P/E ratio of 12 in comparison to a historic multiple in the 15 to 16 range.
The company next reports on Feb. 6.
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