Company Description: Hasbro, Incs' broad portfolio of toys, games and entertainment offerings includes 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 premium to all four valuations above. The stock is trading at a 21.5% premium to its calculated fair value of $42.35. HAS did not earn any Stars in this section.
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 no Stars in this section. The company has paid a cash dividend to shareholders every year since 1981 and has increased its dividend payments for 12 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
The NPV MMA Diff. of the $1,604 is below the $2,300 target I look for in a stock that has increased dividends as long as HAS has. The stock's current yield of 3.28% exceeds the 3.08% 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 0.0% yield.
Conclusion: HAS did not earn any Stars in the Fair Value section, did not earn any Stars in the Dividend Analytical Data section and did not earn any Stars in the Dividend Income vs. MMA section for a total of zero Star. This quantitatively ranks HAS as a 0-Star Avoid stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to decrease to $44.37 before HAS's NPV MMA Differential decreased to the $2,300 minimum that I look for in a stock with 12 years of consecutive dividend increases. At that price the stock would yield 3.8%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $2,400 NPV MMA Differential, the calculated rate is 9.4%. This dividend growth rate is higher than the 8.3% used in this analysis, thus providing mo margin of safety. HAS has a risk rating of 2.0 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 with Electronic Arts EA, Activision ATVI and The Hub, its joint venture with Discovery, positions its brands consistently to connect with a larger and more diverse audience. The company dominates the big screen arena, generating revenue streams from its licensing businesses (Star Wars, Marvel).
HAS second quarter results saw earnings and revenues up considerably over the prior year. The Girls segment continues to drive growth, while the Boys segment was up, but less impressive. The company continues to focus on establishing worldwide presence through strategic partnerships and rapid growth in emerging markets. Offsetting growth in Europe, Latin America and Asia-Pacific, sluggish economies in the U.S. and Canada has led to lower consumer spending on non-essential purchases.
The company enjoys a strong market share position but faces fierce competition and strong buying power of U.S. based toy retailers. The stock is trading above my calculated fair value price of $42.35 and both its debt to total capital (58% up from 51%) and free cash flow payout (217% up from 64%) are above my preferred maximums. For now, I will continue to remain on the sidelines.
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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