August 23, 2010 - Hasbro, Inc. (HAS-NYSE) engages in the design, manufacture, and marketing of games and toys. The company principally provides children's and family leisure time and entertainment products and services. It makes various games, including traditional board, card, hand-held electronic, trading card, roleplaying, and DVD games, as well as electronic learning aids and puzzles.

The company also licenses certain of its trademarks, characters, and other property rights to third parties for use in connection with consumer promotions and for the sale of noncompeting toys and games, and non-toy products.

Products are primarily PLAYSKOOL, TRANSFORMERS, NERF, MY LITTLE PONY, LITTLEST PET SHOP, TONKA, G.I. JOE, SUPER SOAKER, MILTON BRADLEY, PARKER BROTHERS, CRANIUM, AVALON HILL, TIGER, FURREAL FRIENDS, BABY ALIVE, STRAWBERRY SHORTCAKE, and WIZARDS OF THE COAST brand names.

The company markets to various customers, including wholesalers, distributors, chain stores, discount stores, mail order houses, catalog stores, department stores, and other retailers, as well as Internet-based e-tailers. It has a strategic licensing agreement with Electronic Arts Inc. (EA), which provides EA with the worldwide rights to create digital games for various platforms, including mobile phones, personal computers, and game consoles, and a strategic relationship with Universal Pictures to produce approximately three motion pictures based on certain of company's brands.

Hasbro sells through its own sales force and distributors primarily in the United States, Canada, Mexico, Europe, Asia Pacific, Latin America, and South America. The company was founded in 1923 and is headquartered in Pawtucket, Rhode Island.

Here's an interesting fact: Hasbro just hit a high of $44.59 a share. On August 18. That's the highest it's been in 15 years or more. Last year, I wrote up the stock, and it was trading at $30. Something good is going on here. Whatever it is, investors love it.

Earnings took a small dip in 2008, going to $2.00 from $2.05 in 2007. Last year, they bounced back to $2.48. This year, 13 analysts have a consensus view of $2.63, then forecast $3.10 for 2011. Quaterly earnings will be out in October. Consensus is for $1.03, up from 99 cents in the third quarter last year. Look for $1.08 in the final three months, a little below the $1.09 of last year's fourth. In the June quarter, results were 29 cents, almost 21% ahead of analysts' 24 cent estimate. The first quarter actuals beat estimates by 62.50% (26 cents vs 16). In last year's fourth quarter, the positive surprise was 34.60%. You get the picture: the company is outperforming estimates consistently.

Second quarter results were very interesting and instructive. Earnings went to 29 cents vs 26 cents last year in the second. It was last year, in the second quarter, that products tied to the movies G.I. Joe and Transformers were shipped. That meant $174 million more in revenues. But this year, without new products from new releases, revenues slipped a little ($738 vs $792) while earnings went up more than 10%. That was due to better sales of Games and Puzzles (up 22%) and Preschool (up 32%). Also contributing was higher sales of Entertainment and Licensing which saw profits grow to $13 million from $2.9 million in last year's second quarter. Those incremental profits came from movie related licenses.

Movies keep coming. In 2011, look for the latest installment of Transformers (without Megan Fox). That wil be out in July. There will also be television programs with it. Hasbro also owns Marvel, where many action figures live. Two of those super heroes are coming to the big screen next year: Captain America and Thor. That should keep sales and profits strong for at least another year.

Big things are in the works, as in a network. Hasbro is forming a joint venture with Discovery Communications that will start a new children's network called The Hub which will reach about 60 million homes. That starts in early October. Hasbro's own studio already has some programming: Transformers Prime, G.I. Joe Renegades, and Family Game Night. Discovery will contribute educational programming, and there will be other third-party content. Initial start-up costs will trim about 25 cents from earnings this year with much of that going to marketing. Management estimates the new venture will add to earnings in 2011. It's also thinking new toys associated with these programs will increase sales by $300 million.... a year.

In the last 52 weeks, the stock is up 66%, well ahead of the 6.8% that the S&P 500 index advanced. Investors have heard and love this story, but valuations are still rather reasonable. The P/E is 15, and the Forward P/E is 13.61. The average P/E has been between 10 and 22 over the last 8 years.

More numbers: Market Cap is $5.90 billion. Price to sales ratio is 1.48. Price to book is 3.82. Book value is $11.25. Operating margin for the last 12 months was 15.32% whle Profit margin was 10.30%. Return on equity was a powerful 28.10% and Return on assets was 10.45%. Total cash is $893.21 million for $6.39 a share. Total debt is $1.41 billion, about 47% of capital. Current ratio is 3.17. There are 139.82 million shares outstanding with a Float of 125.80 million. Insiders own 9.79% of the stock. Institutions own 84.70% of the Float. There is an annual dividend of $1.00, up from 80 cents last year which was up from 76 cents which was up from 60 cents, etcetera, etcetera, etcetera. The quarterly dividend was paid on August 15, ex-dividend date was July 29.

Hasbro isn't playing around. It's focused on growing its brands. The new venture with Discovery could be very big. The new releases for its own brands as well as Marvel's could also score well. There's a lot of good happening here, even with an economy that has yet to find traction that is positive.

- Company Web site: www.hasbro.com

- Ted Allrich