Company Description: Hasbro, Inc's. holds a broad portfolio of toys, games and entertainment offerings including brands such as Transformers, Playskool, Monopoly and My Little Pony.
Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number
HAS is trading at a premium to all four valuations above. The stock is trading at a 12.0% premium to its calculated fair value of $42.55. HAS did not earn any Stars in this section.
Dividend Analytical Data: In this section, there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
1. Free Cash Flow Payout
2. Debt-To-Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%
HAS earned one Star in this section for 1.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. The company has paid a cash dividend to shareholders every year since 1981 and has increased its dividend payments for 11 consecutive years.
Dividend Income Vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
1. NPV MMA Diff.
2. Years to > MMA
HAS earned a Star in this section for its NPV MMA Diff. of $5,551. This amount is in excess of the $2,400 target I look for in a stock that has increased dividends as long as HAS has. The stock's current yield of 3.27% exceeds the 3.22% estimated 20-year average MMA rate.
Memberships and Peers: HAS is a member of the S&P 500. The company's peer group includes: Mattel, Inc. (NASDAQ:MAT) with a 3.1% yield, LeapFrog Enterprises Inc. (NYSE:LF) with a 0.0% yield and JAKKS Pacific, Inc. (NASDAQ:JAKK) with a 2.5% yield.
Conclusion: HAS did not earn any Stars in the Fair Value section, earned one Star in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of two Stars. This quantitatively ranks HAS as a 2-Star Weak stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $66.23 before HAS's NPV MMA Differential decreased to the $2,400 minimum that I look for in a stock with 11 years of consecutive dividend increases. At that price, the stock would yield 2.4%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $2,400 NPV MMA Differential, the calculated rate is 10.0%. This dividend growth rate is lower than the 13.0% used in this analysis, thus providing a margin of safety. HAS has a risk rating of 2.00, which classifies it as a Medium risk stock.
HAS has a healthy lead in its exposure to the digital and entertainment segment. The company's relationships with Electronic Arts (NASDAQ:EA), Activision (NASDAQ:ATVI) and The Hub, its joint venture with Discovery positions its brands consistently to connect with a larger and more diverse audience. The company dominates the big screen arena, generating revenue streams from its licensing businesses (Star Wars, Marvel).
In 2013, the company should see positive momentum in the boys category, driven by new movie releases. In addition, it should see benefits from the addition of Sesame Street characters in the preschool category. The ongoing updating of My Little Pony and Furreal Friends should provide a boost in the girls category.
A cost reduction initiative was developed in fourth quarter of 2012. The expected benefit in 2013 should offset implementation costs with incremental benefits coming in 2014 and beyond. The stock trading above my calculated fair value price of $42.55 and its debt to total capital is above the 45% maximum I look for. For now, I will remain on the sidelines.
Full Disclosure: At the time of this writing, I held no position in HAS (0.0% of my Dividend Growth Portfolio). See a list of all my dividend growth holdings here.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.