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Time to Play with Hasbro? - HAS

August 15, 2009 | About:
Hasbro Inc. [NYSE:HAS] August 14, 2009 close: $26.61

52-week range: $21.14 (Mar. 9, 2009) - $41.50 (Sep. 19, 2008)

Dividend = $0.20 quarterly = 3.0% current yield


Hasbro is one of the world’s largest toy and game makers. Major brands include Playskool, Parker Brothers, Milton Bradley, G.I. Joe, My Little Pony, Scrabble, Yahtzee and Monopoly. Sales broke above the $4 billion mark for the first time in 2008 and seem likely to exceed that level again this year.

Two big movie releases this year (Transformers: Revenge of the Fallen and G.I. Joe) will contribute revenues through licensing agreements on related toys and assorted other merchandise.

Earnings held up very nicely despite the recession. Here are Hasbro’s per share numbers from continuing operations as reported by Value Line:

Year .........Sales ........ C/F ......... EPS ......... Div. ........ B/V ....... Ave. P/E

2002 ........16.26 .......1.67 ........ 0.62 ........ 0.12 ....... 6.88 .........22.0x

2003 ........17.88 .......2.16 ........ 1.20 .........0.12 ....... 8.01 .........14.3x

2004 ........16.91 .......2.05 ........ 1.08 .........0.24 ........9.25 .........18.1x

2005 ........17.35 .......2.35 ........ 1.22 .........0.36 ........9.69 .........16.6x

2006 ........19.62 .......2.35 ........ 1.24 .........0.45 ........9.57 .........16.7x

2007 ........26.43 .......3.47 ........ 2.05 .........0.64 ........9.54 .........14.2x

2008 ........28.88 .......3.40 ........ 2.00 .........0.76 ........9.99 .........15.9x

With consensus views now at $2.10/share, Hasbro’s P/E is now less than 12.7x – one of its lowest levels of the past fifteen years. Its dividend yield, at 3%, is better than you can get right now on bank CDs and money markets. The dividend has been raised in each of the past five years yet is quite sustainable at about a 38% payout ratio.

Value Line rates Hasbro as ‘above average’ for safety and notes their ‘stock price stability’ and ‘earnings predictability’ get high marks at the 90th and 70th percentile ranks respectively (with 100th being best).

A return to even 14x this year’s estimate leads to a 6-month price target of $29.40 /share or

plus 10.5% from yesterday’s close.

Is that a reasonable price to expect? Sure. Hasbro shares have traded as high as $33.50, $41.70 and $29.90 at their highs in 2007-2008 and 2009 year-to-date. They peaked at $27.70 in 2006 when full-year earnings came in at just $1.24 /share.

Here’s a nice 17-month buy/write combination play that makes sense to me.

................................................... Cash Outlay ......... Cash Inflow

Buy 1000 HAS @ $26.61 ................. $26,610

Sell 10 Jan. 2011 $30 Calls @ $2.35 .............................. $2,350

Sell 10 Jan. 2011 $30 Puts @ $6.40 .............................. $6,400

Net Cash Out-of-Pocket .................. $17,860


If Hasbro shares rise to at least $30 (+ 12.8%) by January 21, 2011:

• The $30 calls will be exercised.

• You will sell your shares for $30,000.

• The $30 puts will expire worthless.

• You will likely have received at least $1,000 in dividends.

• You will have no further option obligations.

• You will hold no shares and $31,000 in cash.

That’s a best-case scenario total return of $13,140 / $17,860 = 73.5%

achieved on shares that only needed to rise by 12.8% or more over a 17 month holding period.


What’s the risk?

If Hasbro shares remain below $30 through the Jan. 2011 expiration date:

 The $30 calls will expire worthless.

 The $30 puts will be exercised.

 You will be forced to buy another 1000 HAS shares.

 You will need to lay out an additional $30,000 in cash.

 You will likely have collected $1,000 in dividends.

 You will have no further option obligations.

 You will end up with 2000 HAS shares and $1,000 cash.




What’s the break-even point on the whole trade?


On the original 1000 shares it’s their $26.61 purchase price less

the $2.35 /share call premium = $24.26 /share.

On the ‘put’ shares it’s the $30 strike price less the

$6.40 /share put premium = $23.60 /share.

Your break-even would be $23.93 /share (excluding dividends)

and $23.43 /share including yield.

Hasbro shares could drop by as much as $3.18 /share or (-10%)

without causing a loss on this trade.


Note: If you want to be more conservative, you can do the same type

trade using the $25 strike-price calls and puts for either 2010 or 2011

and still allow for nice total returns.


Disclosure: Author is long HAS shares and short HAS options.

About the author:

Dr. Paul Price
http://www.RealMoneyPro.com
http://www.gurufocus.com/peter_lynch.php
http://www.TalkMarkets.com
http://www.MutualFunds.com

Visit Dr. Paul Price's Website


Rating: 3.8/5 (5 votes)

Comments

Dr. Paul Price
Dr. Paul Price premium member - 5 years ago


Zacks likes Hasbro now...



















HASBRO INC ([url=javascript:void(0)]HAS[/url])

Oct 16, 2009 [url=javascript:void(0)][/url]

Hasbro Inc. ( HAS ) is one of four companies that make the grade for the High Rank Value profit track. This stock picking strategy looks for companies with a high Zacks Rank that carry low valuations. Learn about this company and others.

Hasbro Inc. ( HAS ) delivered a 13.04% surprise in year-over-year second quarter earnings, which jumped to 26 cents per share, compared to 25 cents last year. In addition, the company enjoys a dividend yield of 2.81% and will pay a dividend of 20 cents on Nov 16. The Zacks #2 Rank company qualifies for this profit track with a P/E ratio of 14.91 and a P/B ratio of 2.87. HAS is a worldwide leader in children's and family leisure time and entertainment products and services. The company will release third quarter earnings on Oct 19, 2009.
Dr. Paul Price
Dr. Paul Price premium member - 5 years ago
Hasbro Earnings Top Estimates





By Joseph Woelfel



PAWTUCKET, R.I. (TheStreet) -- Hasbro

(HAS Quote) said third-quarter earnings rose 8% to $150.4 million, or 99 cents a share, as sales dipped slightly.



The toy maker said third-quarter sales were $1.28 billion from $1.3 billion a year earlier.


The latest quarter included a dilutive impact of 3 cents a share from its investment in a joint venture with Discovery Communications.


Analysts surveyed by Thomson Reuters expected Hasbro to report earnings of 93 cents a share on revenue of $1.32 billion.


Hasbro, in a press release Monday, said U.S. and Canada segment net revenue fell slightly to $791.9 million from $821 million in 2008. The results reflect a strong performance in the boys category offset by declines in girls, preschool and the games and puzzles categories.


Entertainment and licensing segment net revenue in the third quarter was $41.6 million, up from $18.3 million in 2008 on increases at its Transformers and G.I. Joe lines. Operating profit in the segment rose to $19.8 million from $6.3 million in the same period of 2008.

Dr. Paul Price
Dr. Paul Price premium member - 4 years ago


Transforming Hasbro

By LAWRENCE C. STRAUSS - Barrons

The maker of iconic toys and games is transforming itself into a global powerhouse with shrewd use of media new and old.

SHARES OF HASBRO HAVE PLAYED WELL LATELY, thanks in part to a strong fourth quarter. At 38 and change late last week, its stock was bumping against its 52-week high.

But Hasbro (ticker: HAS) could well have more upside, as it morphs from a U.S.- focused toy maker into a global outfit that reaches consumers via stores, TV, the Web, movies, electronic games and even iPhones. “People don’t appreciate the business-model transformation that’s going on,” says analyst Byron Penstock of RS Investments, which has a Hasbro stake.

Hasbro is parlaying brands like Transformers into big revenue boosters.

Consider Transformers. In 2006, sales from the toy-robot line were about $100 million. The next year brought the wildly successful Transformers action movie, which grossed $700 million-plus worldwide, raised awareness of the toys and helped push their sales to $484 million. In 2009, when another Transformers movie was released, sales jumped to $592 million — aided by the more than 250 licensees who paid Hasbro for the right to sell everything Transformers, including towels and sheets.

INDEED, THIS ISN’T YOUR FATHER’S Hasbro, whose iconic brands include the board games Monopoly, Clue, Risk, and Candy Land, and toy lines G.I. Joe, Nerf, and PlaySkool. The board games are especially profitable.

Brian Goldner, the CEO since 2008, joined Hasbro in 2000, and headed its U.S. toy group early on. “The first thing we had to do was focus on certain brands and get them to be relatively large,” he says. Last year, the company’s top eight brands generated about 50% of its more than $4 billion in revenue, versus 17% in 2001. That boosted margins and profitability.

Hasbro has a very manageable debt-to-total capital ratio — about 42% — and $636 million in cash. It recently lifted its dividend to $1 a share, for a yield of 2.6%. In 2009, net was an impressive $2.48 a diluted share, versus $2 in ‘08, on a 1% revenue gain. At 15 times estimated 2010 profits and nearly 13 times 2011’s, the stock looks reasonably priced.

A key part of Hasbro’s multimedia strategy is taking place in Hollywood, far from the company’s Pawtucket, R.I., headquarters. Iron Man 2, based on the Marvel character, will be released this spring. Hasbro has the master license to sell Iron Man toys and games. Next year, a third Transformers feature will be released, along with action films based on Marvel properties Thor and Captain America. And a G.I. Joe sequel is in the works.

One worry is that Hasbro will become too tethered to the fate of movies. However, it doesn’t put up any money for movie production, although it does pay royalties to studios under certain conditions. “What is Hasbro’s risk for a movie? The answer is virtually none,” says David Hargreaves, its chief operating officer.

Some investors also fret about Hasbro’s 2009 announcement that it would take a 50% stake in a joint venture with Discovery Communications [DISCA] for a Website and children’s cable network. Hasbro paid $300 million up front, and should incur $80 million to $100 million a year in programming costs. The worry is that Hasbro won’t earn an adequate return. But if the venture succeeds, it has tremendous upside.

THE GENESIS OF THE DEAL is that Hasbro couldn’t get enough “shelf space” for its shows on other kids’ networks. “We had to buy into a network to guarantee our distribution,” says Hargreaves. Margaret Loesch, a seasoned, well-regarded children’s entertainment executive, runs the JV. So far, Hasbro has announced it will run animated versions of Transformers, G.I. Joe and My Little Pony on a cable network called The Hub, which starts this fall.

The joint venture cut 2009 earnings by 12 cents a share, and is likely to cost 25 to 30 cents this year. The key is to “get the programming attractive enough to get the eyeballs,” says Needham & Co. analyst Sean McGowan. Last week, he downgraded Hasbro to Buy from Strong Buy, but he sees strong long-term growth and has a one-year target price of 45 on the stock.

Eyeing other new media, Hasbro has a deal with Electronic Arts (ERTS) to convert properties like Monopoly from cardboard to electronic formats, including the iPhone.

The Bottom Line

Hasbro shares fetch about 15 times 2010 profit estimates — very reasonable, especially with the toy maker striding into several new-media ventures. An analyst sees 18% upside.

Long dependent on boys for sales, Hasbro has made big strides in the girls’ market, thanks to lines such as My Little Pony and Littlest Pet Shop. Last year, revenue from that segment was $791 million, versus less than $60 million in 2000.

Similarly, Hasbro is boosting its presence in countries such as Brazil by hiring abroad, rather than using independent distributors. Stronger global sales should boost the bottom line in the not-so-distant future.

In sum, Hasbro isn’t using its old play book anymore. That’s great news for its shareholders.

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