Company Description: Hasbro, Inc. holds a broad portfolio of toys, games and entertainment offerings including brands such as Transformers, Playskool, Monopoly and My Little Pony.
Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number
HAS is trading at a discount to 1.) and 3.) above. The stock is trading at a 21.5% discount to its calculated fair value of $43.64. HAS earned a Star in this section since it is trading at a fair value.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%
HAS earned two Stars in this section for 1.) and 3.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. HAS earned a Star for having an acceptable score in at least two of the four Key Metrics measured.
Rolling 4-yr Div. > 15% means that dividends grew on average in excess of 15% for each consecutive 4 year period over the last 10 years (2002-2005, 2003-2006, 2004-2007, etc.) I consider this a key metric since dividends will double every 5 years if they grow by 15%. The company has paid a cash dividend to shareholders every year since 1981 and has increased its dividend payments for 10 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
1. NPV MMA Diff.
2. Years to > MMA
HAS earned a Star in this section for its NPV MMA Diff. of the $41,127. This amount is in excess of the $2,500 target I look for in a stock that has increased dividends as long as HAS has. The stock's current yield of 4.03% exceeds the 3.1% estimated 20-year average MMA rate.
Memberships and Peers: HAS is a member of the S&P 500. The company's peer group includes: Mattel, Inc. (MAT) with a 3.9% yield, LeapFrog Enterprises Inc. (LF) with a 0.0% yield and JAKKS Pacific, Inc. (JAKK) with a 2.2% yield.
Conclusion: HAS earned one Star in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of four Stars. This quantitatively ranks HAS as a 4-Star Strong stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $89.72 before HAS's NPV MMA Differential decreased to the $2,500 minimum that I look for in a stock with 10 years of consecutive dividend increases. At that price the stock would yield 1.5%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $2,500 NPV MMA Differential, the calculated rate is 8.7%. This dividend growth rate is lower than the 16.8% used in this analysis, thus providing a significant margin of safety. HAS has a risk rating of 2.00 which classifies it as a Medium risk stock.
HAS has a healthy lead in its exposure to the digital and entertainment segment. The company's relationships Electronic Arts EA, Activision ATVI and The Hub, its joint venture with Discovery, positions its brands consistently to connect with a lager and more diverse audience. In 2012, it should see benefits in the preschool category from the addition of Sesame Street characters. The ongoing updating of My Little Pony and Furreal Friends should provide a boost in the girls category.
In addition, HAS dominates in the movie licensing businesses (Star Wars, Marvel, etc.) which generates new streams of revenue. HAS should enjoy positive momentum with boys driven by 2012's new movie releases. Recent weakness has the left the stock trading well below my calculated fair value price of $43.64.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I held no position in HAS (0.0% of my Dividend Growth Portfolio). See a list of all my dividend growth holdings here.
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