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.
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.
