Hasbro Inc. May 2014 Quarterly Valuation $HAS

HasbroBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Highest Dividend Yields Among Undervalued Enterprising Companies.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Hasbro Inc. (HAS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Hasbro, Inc., engaged in providing children’s and family leisure time products with a range of portfolio of brands and entertainment properties. The Company’s brand architecture identifies franchise brands, challenger brands, key partner brands and new brands. Franchise and challenger brands include many well-known brand names such as TRANSFORMERS, NERF, LITTLEST PET SHOP, MY LITTLE PONY, BABY ALIVE, G.I. JOE, MONOPOLY, MAGIC: THE GATHERING, PLAY-DOH and PLAYSKOOL. In addition to product offerings under Hasbro-owned brands or brands which if not entirely owned are broadly controlled by the Company, offerings may also include products branded and developed under key licenses. The licensed brands include BEYBLADE, SPIDER-MAN and THE AVENGERS from MARVEL, SESAME STREET, STAR WARS and ZYNGA product offerings. In July 2013, Hasbro Inc announced the acquisition of a majority stake in Backflip Studios.

HAS Chart

HAS data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $53.87
MG Value $37.10
MG Opinion Overvalued
Value Based on 3% Growth $39.27
Value Based on 0% Growth $23.02
Market Implied Growth Rate 5.70%
NCAV -$2.25
PEmg 19.89
Current Ratio 1.96
PB Ratio 4.40

Balance Sheet – 3/30/2014

Current Assets $2,142,100,000
Current Liabilities $1,093,700,000
Total Debt $959,900,000
Total Assets $4,029,400,000
Intangible Assets $957,000,000
Total Liabilities $2,435,000,000
Outstanding Shares 130,230,000

Earnings Per Share

2014 (estimate) $3.16
2013 $2.20
2012 $2.55
2011 $2.82
2010 $2.73
2009 $2.45
2008 $1.98
2007 $1.97
2006 $1.29
2005 $1.09
2004 $0.96

Earnings Per Share – ModernGraham

2014 (estimate) $2.71
2013 $2.50
2012 $2.61
2011 $2.55
2010 $2.31
2009 $1.98

Dividend History

HAS Dividend Chart

HAS Dividend data by YCharts

Conclusion:

Hasbro Inc. qualifies for Enterprising Investors but not for Defensive Investors.  The Defensive Investor is concerned with the low current ratio and the high PB ratio, but the company passes all of the requirements of the Enterprising Investor.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and its competitors by exploring the ModernGraham Valuation Index.  From a valuation perspective, the company appears to be overvalued currently, after growing its EPSmg (normalized earnings) from $2.31 in 2010 to only an estimated $2.71 for 2014.  This demonstrated level of growth does not support the market’s implied estimate of 5.70% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls well below the market price at this time.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Hasbro Inc. (HAS)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Be sure to check out the previous ModernGraham valuations of Hasbro Inc. as well as dig through the Valuation Index to find other companies!

Disclaimer:  The author held a long position in Hasbro Inc. (HAS) but did not hold a position in any other company mentioned in the article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from wikipedia; this article is not affiliated with the company in any manner.


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