Hasbro, Inc.: Ahead of the Game

Mar. 6.07 | About: Hasbro, Inc. (HAS)

Hasbro, Inc. (NASDAQ:HAS) is the #2 toy maker in the US (after Mattel (NASDAQ:MAT)) and the producer of such childhood favorites as G.I. Joe, Play-Doh, Tonka toys, Nerf balls, and Weebles. Besides toys, Hasbro makes board games under its Milton Bradley ("Scrabble, Candy Land") and Parker Brothers ("Monopoly, Trivial Pursuit") brands, as well as trading cards such as "Pokemon", "Harry Potter", and "Magic: The Gathering" (through its Wizards of the Coast unit). Hasbro also makes "Star Wars" action figures and is the licensee of action figures and games for the prequels, as well as toys related to Disney and other movie and television characters. Hasbro is making a live-action, full-length film based on the G.I. Joe brand.

Here's an interesting fact about HAS: George Lucas (officially George W. Lucas, Jr.) producer of Star Wars, owns about 8% of the stock. Maybe that's why HAS makes Star Wars action figures. Other owners include the Chairman, Alan G. Hassenfeld (9.7%), Southeaster Asset Management (9.5%), Ariel Capital Management (8.9%). Together these individuals and institutions have about 36% of the company.

Things have been going OK at the company for several years in terms of profitability but not in terms of sales. Revenues actually decreased about 3% a year, on average, in the last 5 years while earnings grew, on average, 8%. But it's the future that investors are most interested in, and that looks pretty bright. The stock is already seeing that light, having gone from a low last year of $17.70 to a current level of $29 a share. Analysts are looking for 7.5% annual increases in sales over the next 5 years and earnings to pick up by 9.5% a year on average in the same time period.

The reason for better results? While sales were only up 1% in the first 3 quarters of last year, earnings gained by 7%, on a per share basis. Better sales came from Littlest Pet Shop, Playskool and that old favorite, dependable Monopoly. Some new toys got in on the act, ones like Baby Alive and Zoombox. The Star Wars toys, without any theatrical release to help boost sales, still brought in $182 million in revenues in 3 quarters.

What's ahead? 4 big films with major toy potential, films such as Spiderman 3, a new Fantastic Four, and the first Ghost Rider movie. The fourth one is Hasbro's own Transformers. The last one should sell lots of the robot toys and also generate licensing sales from third-party manufacturers. Analysts think revenues should rise by 15% with these new releases with earnings increasing by 15% as well. Another part of increased earnings per share is the continuing buyback program the company is following. Analysts expect a reduction in shares of 8%-10% by 2010.

There's lots of good news at Hasbro but maybe the stock has already priced it in, going up 63% in 1 year. The valuations are getting fairly lofty as well, with a P/E ratio of 23. Investors like this stock. They've been bidding it higher for the last 6 months as good news has been piled on good news. There's probably some lift left in the stock, especially when the films are released. If you're interested in HAS, dig deeper into the numbers and the forecasts. At some point, all the goodness that is coming HAS's way will be reflected in the price, and that price might be very near.

HAS 1-yr chart

Disclosure: Author has no position in HAS.