Normally, toys are discussed with kids. However, things go differently in the equity world where you will find every sort of person talking about every other thing. Therefore, I have taken the liberty to discuss toy stocks in this post.
1) Tepid domestic industry sales trends
2) Recent decline in their market shares
3) High European exposure
The company announced earnings on April 22. According to consensus estimates, the company was expected to post revenue of $638 million and an EPS of $0.04. However, the company managed to beat both estimates.
The beat came due to the fact that the company’s inventory position is cleaner this year. The Boys division was down 20%, which was offset by a 23% revenue growth in the Girls division and 26% in Games division.
Higher gross margins (+60 bps) and lower royalty expenses (+90 bps) more than offset SG&A deleverage (-90 bps). 2013 is expected to be affected by a weak Euro, given that Hasbro, Inc. (NASDAQ:HAS) brings in 26% of its revenue from Europe.
The stock is regarded as one of the highest dividend yielders in the consumer goods sector. The dividend yield of 3.6% has led Goldman Sachs to increase the target price by $4 to $40 (the forward P/E multiple has been raised from 13x to 14x).
Mattel, Inc. (NASDAQ:MAT) has almost a similar revenue base like Hasbro’s, especially as its geographical revenue exposure matches to that of Hasbro’s. Therefore, a weak Euro will likely affect the company’s earnings for the year. It reported earnings on April 17.
The company, just like its peer, posted a crushing earnings beat. However, all segments didn’t show growth which was previously expected. The following growth/decline was displayed by the segments:
1) Boys/Girls +11%,
2) Fisher Price -7% and
3) American Girl +32%.
The bottom-line improvement came from SG&A leverage. The stock pays a dividend yielding 3.35%. Currently, the stock is being valued at 15x times forward earnings, which gives us a price target of $42, given that the company is expected to post 2013 EPS of $2.80. The higher multiple for Mattel, Inc. (NASDAQ:MAT) reflects its superior fundamentals as compared to Hasbro, Inc. (NASDAQ:HAS).
The main point of contention is that many believe that the recent rally witnessed by both these stocks; Hasbro (up 26% YTD) and Mattel (up 16% YTD), might not be sustainable given the tepid domestic sales trend. Moreover, the earnings beat by both the stocks has propelled them even higher.