While Hasbro (HAS, Financial) and Mattel (MAT, Financial) are the world's two largest toy companies, comparing both companies' numbers side by side tells a surprising story of which company is the strongest. Star Wars and Avengers maker Hasbro, with a $9.39 billion market cap, generates $34.32 per share in sales, while Barbie maker Mattel, with a $8.31 billion market cap, generates just $17.75 in sales for every outstanding share.
In the third quarter, Mattel had more than $1.79 billion in sales, while Hasbro had nearly $1.47 billion in its third quarter. How does a company smaller than Mattel generate higher sales? Does Barbie have more brand power than Star Wars?
In 2005 Hasbro earned $1.09 a share and currently is earning $2.18 a share, growing at 7.18% compounded annually. Mattel that same year had an EPS of $1.01, while it is now surprisingly earning 45 cents a share, a 7.77% decline in growth compounded annually, which is significantly worse than the growth that Hasbro has experienced.
On the cash flow level, Hasbro narrowly outskirts Mattel with $3.64 per share in cash flow versus $2.62 per share. Nonetheless, Hasbro has Mattel beat when it comes to current assets per share. Hasbro has $11.16 per share in current assets; Mattel has a net asset value of $6.18. Hasbro bears an earnings yield of 4.7%; Mattel only has an earnings yield of 3.6%. Mattel also slackens in terms of PE ratio at 27.66, in comparison to Hasbro's valuation of 21.43 times earnings.
On the net income level over the last 10 years, Hasbro has grown its net income 6.84% compounded annually. Mattel has seen its net income go up 6.46% in the same 10-year period. Looking at how the two companies are growing their book values, we see Mattel has grown its book value 1.82% compounded annual increase while Hasbro has seen its book value grow 2.61% compounded annually.
According to Benjamin Graham, asset value and earning power are not related. While Hasbro generates slightly more sales and revenue than Mattel, Hasbro is also at a disadvantage in this comparison because of how expensive its stock is compared to Mattel. Currently Mattel has a book value of $7.58 and has a P/B ratio of 3.27 while Hasbro has a higher book value of $12.37 with a slightly higher P/B ratio of 6.18. But Mattel falls short with its 5.34% net profit margin while Hasbro has a net margin of 10.42%.
Looking at the economics of the two companies we see that Hasbro is currently earning a 35.47% return on capital while Mattel is earning a 21.13% return on its capital. Hasbro also has Mattel beaten in regards to margins, with a gross margin of 52.88% and an operating margin of 20.63%, compared to Mattel's 49.09% gross margin and 16.78% operating margin.
Hasbro has a shareholders' equity of $11.76 a share and net earnings of $3.34 a share, while Mattel has shareholders' equity of $8.69 a share and net income of $1.47 a share. From a shareholder's position, each share of Hasbro that you own has a certificate attached to it that pays $3.34, while Hasbro carries $1.47. This means that each Hasbro share owned is yielding a 28.4% return on shareholders' equity ($3.34 / $11.76 = 28.4%), of which 45% is retained by the company. Each share of Mattel is yielding a 16.9% return on shareholders' equity ($1.47 / $8.69 = 16.9%) but is paying out 103% of earnings through its dividend
Debt can also magnify a company's results. Mattel has a smaller debt burden than Hasbro of only 0.88, while Hasbro has a slightly higher debt-to-equity ratio of 1.08. Is a slightly higher amount of leverage giving Hasbro the upper hand? On its balance sheet, Hasbro has $593 million in goodwill, while Mattel has $1.388 billion in goodwill, showing that Mattel's brand name value may play a bigger role on the balance sheet. In 2013, Mattel announced a $500 million share repurchase program while in February Hasbro announced a $500 million share repurchase buyback.
Hasbro CEO Brian Goldner has been with the company as CEO for seven years; under his leadership, revenue has increased from 0.90%. Under Goldner the stock price has grown 15.26% compounded annually the past seven years. Mattel CEO Christopher Sinclair took the role as interim CEO earlier this year.
The intrinsic value of both companies is also important to look at. Using Graham's Intrinsic Value formula (with the previous 10 years EPS growth rate), we see that Hasbro has an intrinsic value of $56.08 per share, while its shares are currently selling at $73.43, showing the stock is overvalued. Looking at Mattel's intrinsic value using the same formula, we find that its intrinsic value cannot easily be determined with its shrinking growth and declining earnings.
