Monday, February 8, 2010

Hasbro, an AlphaNinja favorite, up 12% after beating earnings (HAS)

Hasbro (HAS) shares are +12% in early trading, after they beat consensus earnings estimates of 81cents by 28cents.  A large part of 2009's impressive performance  - not to mention the q4 upside - is due to licensing income from toys tied to the Transformers franchise.  This is management "walking the walk" in terms of their stated strategy to "re-imagine, re-invent and re-ignite" their core brands.  That brand value was evident in 2009, and is a part of the reason the company has excellent untapped resources that could provide future operational and stock upside.

AlphaNinja readers who joined me in buying the shares in May 2009 have done well, as the stock is up 52% since then, far outpacing the comparable 22% rise in the S&P500.

Revenue beat by a much smaller percent than EPS, so the earnings boost was largely due to the explosive growth in the entertainment and licensing segment, which boasted operating margins of 42%, almost 3times the company-wide average.  The image below does not show the impact of currency fluctuations on the company's international business.  On a constant-currency basis, international results would have shown a 2% increase rather than a 3% decline.

Looking at 2010 and 2011 possible earnings scenarios, I get to a stock price of minimum $44, so to those who own the shares - keep 'em - and to those who don't  - Buy 'em.  The company's 2028 bonds yield 7%, and closer to 6.5% if you exclude a couple trades.

I think the company's Free Cash Flow Yield(FCFY%) should be about 7-8%.  Using those yields, or a Free Cash Flow multiple on earnings of 15, the stock has great upside.  And that's excluding the company's lovely $1.00 dividend, for a yield there of 3%.

Copyright 2010 AlphaNinja

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