Hasbro Investors Pass 'Go,' Collect $200

As families tighten their belts, look for Hasbro's board games to be big sellers this holiday season.
Author:
Publish date:

The holiday shopping season is likely to be grim.

Belts are tightening. Thriftiness is back. And many big-ticket items such as flat-screen televisions and video-game systems probably will be staying on store shelves. Instead, look for Hasbro products like board games and action figures to be low-cost alternatives.

Hasbro

(HAS) - Get Report

, the maker of classic board games such as

Risk

,

Monopoly

,

Scrabble

,

Candy Land

and

Trivial Pursuit

, could be perfectly aligned to collect what little is spent this holiday season. In addition to impressive board games, Hasbro also has several action-figure lines connected to major movie franchises, including "Iron Man," "Transformers," "Star Wars" and "GI Joe," which are positioned to sell well due to a low price point.

Each of these products has a price tag under $30. Parents can fill the empty space under the tree with two or three board games and several action figures for what they would have to spend on an Xbox 360 or a PlayStation 3 alone, not to mention all of the games needed to make the game consoles worthwhile.

Hasbro's stock has risen 3.2% this year, while the

S&P 500

almost halved at one point. Shares of

Mattel

(MAT) - Get Report

, Hasbro's larger rival, have dropped 30% so far in 2008.

Board games and puzzles, Hasbro's largest division, comprise 32% of revenue. Boys' toys follow closely, representing a quarter. With these two major drivers of revenue primed to outperform competitors with higher price points, it's possible that Hasbro could beat analysts' earnings estimates of 82 cents a share this quarter, extending a streak of five quarters of positive earnings surprises.

Hasbro recently signed a deal with video-game maker

Electronic Arts

(ERTS)

, allowing it to create games based on Hasbro intellectual property, such as

Monopoly

and

Trivial Pursuit

. In return, Hasbro gets to make toys, non-digital games and action figures based on successful Electronic Arts games such as

Madden

,

Command and Conquer

,

Warhammer

and

Medal of Honor

. This deal should further strengthen Hasbro's franchises by pushing the company into digital content with a proven leader in the field. At the same time, Hasbro diversifies its product content mix.

TheStreet.com Ratings has had Hasbro listed as a "buy" since November 2006. This is due to a very strong balance sheet supported by healthy cash flows. The company carries close to $1 billion in debt, though it is able to service the requirements comfortably. Currently, the interest coverage ratio is over 18.4 times.

Beyond this, a return on equity of 25.58% and revenue growth of 12% from the previous year's quarter present a picture of profitability and stability. Even with an aggressive share buyback program that has repurchased over $230 million worth of stock year to date, Hasbro maintained a cash balance of $356 million at the end of the third quarter.

Hasbro pays a solid dividend, yielding about 3%, and is currently priced at a discount with a trailing four-quarter price-to-earnings ratio of 11.21 versus 12.20 for the consumer goods sector and 15.10 for the S&P 500. Also, TheStreet.com Ratings notes that Hasbro's 12-month rolling earnings and sales growth has been more than twice that of its industry competitors, including Mattel.

Market corrections represent a fantastic opportunity to scoop up blue-chip stocks at a discount. Hasbro has big-ticket potential at a stocking-stuffer price.