On Monday, we looked at the toy industry with Mattel (MAT). Following up on this series, we will check out another important player in the industry; Hasbro (HAS). While Mattel is part of my Best Dividend Stocks for 2013, Hasbro was part of my selection for 2012. The company has been up by 32.34% this year and was up by another 12.57% for 2012. After a gain of almost 50% in 17 months, is there any more room for profit of have you missed the train?
Hasbro (HAS) Business Description:
Hasbro is a worldwide leader in children and family entertainment. It is mostly known for their numerous toy brands such as Playskool, Tonka, Milton Bradley and Parker Brothers. They are the 2nd largest toy company behind Mattel and have several trademarked franchises such as Transformers, Star Wars and Marvel action Heroes. Since they can’t stop making Marvel Heroes movies and the Star Wars licence was recently purchased by Disney for additional movies, we can expect Hasbro to head back to its peak at the end of 2011:
Their business strategy is based on a continuous flow of new partnerships to make innovative toys in the industry. Back in the 80s, Hasbro had made some strategic moves through the acquisition of Milton Bradley (who knows Monopoly?) and the creation of Transformers. End of the 90s and beginning of 2000s, Hasbro had acquired the licences for Star Wars and Marvel toys. We can deduct that most of their sales growth will be attributed to the movies for which they have the licence for complementary products.
Hasbro was quite aware that it was a bit risky to gamble their revenues based on Hollywood and their mood swings. This is why starting back in 2008, they focused on creating or innovating within their own brand. Some of their flagship owned brands such as My Little Pony and Magic The Gathering were pushed to another level to make sure that Hasbro could have great years even if the movie industry sucks.
As at 2012, Hasbro had the following market shares:
USA 12.7%
Western Europe 8.3%
Mexico & Brazil 11.5%
Their most recent investor presentation shows a 10 year net annual revenues growth of 4% annualized return. But if you look closely at the graph, you notice revenue stagnation since 2008.
HAS Stock Graph
HAS Dividend Growth Graph
One snap shot at the dividend payout for the past five years and you will fall in love with the stock:
But a second look at the payout ratio rises a red flag:
Due to a difficult year (even Hasbro management admits it), the payout ratio has gone up compared to its previous year. 2013 seems brighter since it already dropped from its peak of 2012.
A look at their Earnings Per Share also tells me the same story: Sales and profits have a hard time growing in this tough economic period:
The Company Ratios and Financial Info:
Ticker HAS US Equity
Name Hasbro Inc
Dividend Metrics
Current Dividend Yield 3.4
5 year Dividend Growth 16.83
1 year Dividend Growth 17.46
Company Metrics
Sales Growth (1 year) -4.59
Sales Growth (5 year) -0.95
EPS growth (5 year) 7.24
P/E ratio 16.81
P/E Next Year 14.79
Margins growth 0.07
Payout ratio 55.62
Return on Equity 23.22
Debt to Capital Ratio 0.26
While the dividend metrics look great for now (high dividend growth, relatively high dividend yield and payout ratio back under 60%), sales stagnation worries me.
HAS Stock Technical Analysis
HAS is currently trading on a strong uptrend. It might be a good time to acquire this stock. Click here to get a free stock analysis report on HAS.
Hasbro Upcoming opportunities and dangers:
Hasbro has a strong position in the US with 52% of their sales coming from their main market. They also did a strong incursion in the Emerging markets with over 10% of their revenues coming from the fastest growing countries of the world. Nonetheless, this doesn’t seem enough to keep Hasbro growing.
The company has aggressively given back a lot of money to its investors through share repurchases and the major dividend growth policy. Based on the classic financial theory; a company is paying dividends when it doesn’t see growth opportunities. I think Hasbro should maybe slowdown on the dividend growth and focus on creating more innovative toys. In my opinion, this company is still a little bit too much linked to the movie industry.
I guess the upcoming heroes movies and the next Star Wars Trilogy are both great news for both Hasbro and its investors!
The reason why I had picked HAS for 2012 was based on its record year of 2011. While the stock did well, the sales and earnings dropped throughout the following years. However, the first quarter of 2013 is showing growth in revenues, profits and EPS. This is probably why the stock has gone up, doped by the overall bull market feeling.
Final Thoughts on Hasbro
If I was a Hasbro stock owner, I would probably hold on the stock and watch the next quarters carefully. If 2012 was simply a bad year in the economic cycle and 2013 shows growth, I would be quite optimistic with regards to the future of the company. However, if sales still stagnate, I think it will be time to cash out the money and run.
What do you think? Are you a Hasbro fan?
Disclaimer: I do not hold HAS or MAT in my portfolio.
I personally favor Mattel over Hasbro. I think they have the competitive advantage.
Hey Zach,
I totally agree with you 🙂 Mattel owns more brand than Hasbro. The license strategy is a good one as long as the movies and tv shows roll.
I’ll be looking at Disney next week to see which stock is better!
I like your analysis. I had very little knowledge about HAS, so your review brought great info to me. I added the stock into my watchlist. From your review this stock looks like a good candidate to buy. (increasing dividend, lowering payout, etc…) The only issue I have with this company is how they want to survive electronic age over the classical toys. Like Pitney Bowes which was once a great company providing postal services and today almost nobody uses postal services anymore. I think this is a similar pattern.
I’m a fan of Hasbro. I purchased it back before the big run up at a decent valuation. I liked the higher dividend yield that was being offered. Like you point out it will be important to monitor revenue and earnings growth over the next couple years. I don’t think I’d be buying now though as it is fairly high priced.
I agree with Martin that electronic toys has taken some market. However, I don’t think kids will ever stop playing with action figures, dolls and board games. I look for the company to ride out current difficulties and get back on track in the future.
No video games could have taken me away from my Ninja Turtles and my Transformers when I was a kid 😉
Unfortunately, I now see 7 year old kids with iPod Touch in their pockets…