Hasbro Inc. (NASDAQ:HAS) has an excellent history, with a large number of very memorable brands that are cherished by many individuals, but the strength of the brands and the likelihood that the company's products will continue to sell contributes little to the Intelligent Investor's analysis. Rather, the Intelligent Investor bases his analysis on the fundamentals of the company in an attempt to gauge the risk level of the company and determine an estimate of the intrinsic value of the company. This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company. By using the ModernGraham method one can review a company's historical accomplishments and determine an intrinsic value that can be compared across industries. What follows is a specific look at how Hasbro, Inc. fares in the ModernGraham valuation model.
Defensive Investor - must pass at least 6 of the following 7 tests: Score = 5/7
- Adequate Size of Enterprise - market capitalization of at least $2 billion - PASS
- Sufficiently Strong Financial Condition - current ratio greater than 2 - FAIL
- Earnings Stability - positive earnings per share for at least 10 straight years - PASS
- Dividend Record - has paid a dividend for at least 10 straight years - PASS
- Earnings Growth - earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - PASS
- Moderate PEmg ratio - PEmg is less than 20 - PASS
- Moderate Price to Assets - PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL
Enterprising Investor - must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5
- Sufficiently Strong Financial Condition, Part 1 - current ratio greater than 1.5 - PASS
- Sufficiently Strong Financial Condition, Part 2 - Debt to Net Current Assets ratio less than 1.1 - PASS
- Earnings Stability - positive earnings per share for at least 5 years - PASS
- Dividend Record - currently pays a dividend - PASS
- Earnings growth - EPSmg greater than 5 years ago - PASS
|MG Opinion||Fairly Valued|
|Value Based on 3% Growth||$39.07|
|Value Based on 0% Growth||$22.90|
|Market Implied Growth Rate||5.75%|
Balance Sheet - 9/30/2013
Earnings Per Share
Earnings Per Share - ModernGraham
Hasbro, Inc. is not suitable for the Defensive Investor due to its low current ratio and its high PB ratio. The company is suitable for the Enterprising Investor after passing all of the requirements of the investor type, though the current ratio is rather close to the minimum. As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham's methods will be comfortable proceeding with further research to determine whether the company fits within their own personal investment strategy. From a valuation standpoint, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $1.65 in 2008 to $2.69 for 2013. This level of growth is close to the market's implied estimate for growth in earnings of 5.75%, and the ModernGraham valuation model returns an estimate of intrinsic value that falls within a margin of safety when compared with the current price.
Disclaimer: The author did not hold a position in Hasbro, Inc. (HAS) at the time of publication and had no intention of changing that position within the next 72 hours.