All I Want for Christmas is Hasbro
Toy maker Hasbro (Nasdaq: HAS) offers investors solid growth at a very reasonable price. The maker of G.I. Joe, My Little Pony, Furby, Transformers and other popular toys has seen earnings per share grow at an average annual rate of 16.9 percent and is trading on a prospective 2012 price/earnings ratio of 13.6x. Hasbro has a dividend yield of 3.7 percent on today's price and plans to maintain a dividend payout ratio of 45 to 50 percent.
Over the past five years, Hasbro has pursued its strategy of replacing third-party distributors overseas with its own offices. Since 2006, the company has opened offices in Peru, Columbia, Brazil, Russia, the Czech Republic, Romania, South Korea and China. Management feels that it can better develop its global brands with its own people and better exploit the different outlets for Hasbro products including toys, movies, computer games and television.
In 2011, Hasbro derived about 43.5 percent of revenues and 45.7 percent of its operating profit from outside the United States and Canada. The company saw strong growth in Europe, Latin America and Asia during 2011, at a time when the U.S. market was weak. Hasbro also benefited from the weaker U.S. dollar by booking currency translation gains to revenue.
Hasbro creates and markets toys and games in 170 countries around the world. In addition to the physical toys, the company produces toy-themed movies through its Hasbro Studios and toy-themes television programs, including a cable children's television channel joint venture with Discovery Communications (Nasdaq: DISCA) called “The Hub.” Hasbro plans to release seven movies during 2012, including G.I. Joe, Iron Man, Star Trek, Ouija and two re-releases of Star Wars in 3D. Television programming in 2013 includes Transformers, Spiderman, Star Wars, My Little Pony and The Littlest Pet Shop.
One of management's key goals is to return profitability in the U.S. and Canada to normal levels during 2012. As of the second quarter, revenues were down 19 percent in the U.S. and Canada segment and down four percent in the International segment, primarily due to weakness in Europe. Management expressed confidence that the situation will improve in the U.S. and Canada during the second half of 2012 as retail inventories have decreased and shipments are more closely aligned with consumer demand. Continued weakness in Europe remains a negative in the International segment but growth remains strong in Asia and Latin America, excluding the impact of currency translation adjustments.
One of Hasbro's core strategies is to have strong licensing partners, such as Lucasfilms, Marvel (NYSE: MVL), Rovio, Zynga (Nasdaq: ZNGA) and CBS (NYSE: CBS). Today, Hasbro announced a tie-up with Alpha Animation and Culture Co., Ltd, China's first listed animation company and one of the country's largest toy manufacturers for the joint development and marketing of toys in China.
Hasbro is scheduled to announce third quarter earnings on October 22, 2012. At that time, we will see if management has been able to return its U.S. and Canada segment to normal profitability and we will also be able to assess the impact of deepening recession on the company's business in Europe.
Hasbro management has been able to deliver consistent growth to its shareholders over a very difficult period following the financial crisis of 2008. Shareholders have been rewarded with capital gains, strong dividend growth and an aggressive share buyback program.
On the chart, Hasbro is well-supported by a rising 50-day simple moving average (37.80) but faces some resistance at the 500-day simple moving average (39.64). A breakout above the 500-day simple moving average which, admittedly will take some doing, could send the price toward the $45 mark. In the meantime, investors will get paid handsomely to wait while management continues to execute its business plan.
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