Mattel (NYSE: MAT), a toy company that competes with Hasbro (NYSE: HAS) and JAKKS Pacific (NASDAQ: JAKK), got some good news earlier this week. Its stock was upgraded by analyst Gerrick Johnson of BMO Capital Markets, according to the AP, although it wasn't necessarily an overwhelming vote of confidence. The analyst is switching the rating from "underperform" to "market perform," and if you check out the AP piece, you'll see that he basically is saying that while he doesn't see a big reason to sell the stock, he doesn't see a big reason to buy it either. This was a call based on simple valuation.
I was glad when I read this clarification because, when I first spied this headline, I was a bit flummoxed. I honestly didn't expect Mattel to receive some huge upgrade at this point, even though I agree that the stock is certainly cheap. My main reason for this hinges on the best-of-breed character of Mattel's colleague Hasbro. I just wrote about this company and the strength of its stock at the beginning of the week, and if I were to buy any toy business right now, it probably would be the maker of Monopoly and Mr. Potato Head. Hasbro's got the brand strength as well as the stock strength, it seems, and even though Mattel packs a dividend-yield punch at over 4%, this market might be too tough to go with companies that are nowhere near a bullish trend.
Long-term, the maker of Barbie will rebound. Short-term, it may languish. So you'll have to consider your timeframe when taking a look at Mattel and Hasbro. Mattel does have a nice yield, but Hasbro and its product portfolio could be better positioned come the holiday season. It's going to be an interesting battle between these two rivals once the weather turns cold...
Disclosure: I don't own any company mentioned here; positions can change at any time.
CNNMoney over the weekend reviewed the first half of the year for the markets. Among its lists of winners and losers, one stock got my attention.
Believe it or not, Hasbro (NYSE: HAS), a competitor of Mattel (NYSE: MAT) and JAKKS Pacific (NASDAQ: JAKK), was up quite nicely through the end of June. How nice? The stock increased in value by almost 40%. That's impressive, but is it persuasive? What I mean is, should one believe that the company's first-half strength is an undeniable indication that the trend will continue for the rest of the year?
I have been bullish on Hasbro and I think it's a great company that should benefit from the upcoming holiday season, but should doesn't necessarily imply would. We are in what I would call an all-bets-are-off market. The bears, and their claws, are slashing their way through the hallowed halls of Wall Street, and if the negative-wealth effect really gets going, thus further damaging consumer confidence, then one would have to wonder how Hasbro will fare in the second half of the year.
Without a doubt, though, put Hasbro on your watch list and perform some due diligence on the company. It's got some great brands in its portfolio like Monopoly and Transformers, and keep in mind that its Star Wars line is due to receive a nice catalytic jolt from the upcoming Star Wars: The Clone Wars animated project. Hasbro's stock dropped almost 7% in the last month. This followed a lot of up months. If the stock experiences a further pullback, and the dividend yield rises, it may become attractive.
Disclosure: I don't own any company mentioned; positions can change at any time.
Remember that movie deal that Hasbro (NYSE: HAS) signed not long ago with General Electric's (NYSE: GE) Universal Pictures for the express purpose of bringing some of its board game brands to the big screen? Well, I'm happy to report that the first one appears to be in development. And it's the one I was rooting for!
According to the Hollywood Reporter, the Ouija board is getting the big-screen treatment. Sure, Ouija boards have been featured in films before; heck, my friends and I used a Ouija board in a short film we made years ago. But, this time, Hasbro is hooking up with Michael Bay and his Platinum Dunes production company to give the concept a proper cinematic adaptation, one specifically geared, I have no doubt, to increase the value of Hasbro's brand equity and to, like this needs to be even stated, sell more Ouija boards!
Michael Bay is a pretty competent producer/director. He was responsible for Transformers, as I'm sure you'll recall, and he's been hard at work the last few years on remakes of famous horror films. He's already been involved with remakes of The Amityville Horror and The Texas Chainsaw Massacre, and he is working on new takes of A Nightmare on Elm Street and Friday the Thirteenth. He'd better get the latter right, since it's one of my favorite films!
The Marvel Entertainment (NYSE: MVL) release of the box office hit Iron Man, still No. 1 in world wide distribution, has got Hasbro Inc. (NYSE: HAS) rethinking its potential opportunities to leverage its stable of characters into larger than life features.
Under the terms of its new deal with Sunbow Productions, Hasbro has regained ownership of 1,000 hours of cartoons featuring G.I. Joe, Transformers, My Little Pony and Littlest Pet Shop.With the tremendous success of the live action Transformers movie, and a second Transformers as well as a G.I. Joe live action film in production, Hasbro clearly wants full control over its intellectual properties in order to maximize their exploitation.
Hasbo closed yesterday pennies off it's 52-week high of $37.35 and is trading around $36 midday today. Meanwhile Marvel also closed yesterday just off it's 52-week high of $35 closing at $34.27. It is down now in midday trading around $34.50. However, it is up since I posted Chasing Value: Marvel's Iron Man will be HUGE!
UPDATE: HAS closed at $36.26 down -$0.93, and MVL closed at $33.73 down -$0.54.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I do not hold any position or own shares of HAS or MVL.
Toymaker JAKKS Pacific (NASDAQ: JAKK) lost the expectations game earlier this week, my friend. Wall Street was looking for more in terms of earnings per share than the company was apparently able to deliver. Was JAKKS playing around too much these last three months? Who knows -- this business can certainly be fickle, after all.
For the first quarter, JAKKS saw its revenues increase over 5% to nearly $131 million. Earnings per diluted share came in at $0.03 if you take into account litigation expenses, restructuring charges, etc. On an adjusted basis, JAKKS earned $0.13 per share, compared to a year-ago adjusted earnings of $0.14 per share. According to Briefing.com, this was $0.06 less than what the Street wanted.
JAKKS, which competes with Hasbro (NYSE: HAS) and Mattel (NYSE: MAT), didn't have a great quarter, it's true. But I've always found this company and stock to be an interesting one, as it seems to do well over time with its various licensed products, such as merchandise based on some Disney (NYSE: DIS) brands, including Hannah Montana, and toys based on Viacom's (NYSE: VIA) Nickelodeon channel.
Whenever the stock is on a pullback, it always catches my attention (although, I should point out, I have never owned it). In addition, the balance sheet appears to be in good shape: there's a nice amount of cash and cash equivalents at $238 million, long-term debt has remained stable, and the accounts receivable line is down.
JAKKS is still forecasting $2.91 per diluted share for the current fiscal year. Given the share price as of this writing, the P/E ratio on the stock remains compelling.
Disclosure: I own shares of Disney; positions can change at any time.
Mattel's (NYSE: MAT) Q1 earnings report wasn't as fun as its toys, I can tell you that. Let's start at the top line -- net revenues declined by 2%. Operating income was negative -- the company booked a loss of $36.5 million; in the previous year's quarter, operating income was positive at $20.6 million. Mattel had a net loss of $0.13 per diluted share this year versus net income of $0.03 per diluted share in Q1 2007. Gross margins also saw pressure in the current quarter.
Oh, are the powers that be over at Hasbro gloating today or what! While Mattel's stock price, as of this writing, is down 9%, Hasbro's (NYSE: HAS) stock price is rising almost 8%. That's because Hasbro reported a nice profit instead of a loss -- see Eliza Popescu's entry about that toymaker's delightful earnings missive to investors.
Mattel obviously had problems getting people excited about its various brands during the last few months, but maybe the summer will help the company out, as merchandise based on the new Batman and Speed Racer films are set to hopefully win the hearts of kids and collectors everywhere when the movies hit the multiplexes. And Mattel's stock does have an interesting yield at the moment. Still, if I were trying to decide between Hasbro and Mattel, I think I'd probably go for the former -- Hasbro does have the rights for toys from the new Marvel (NYSE: MVL) projects -- Iron Man, The Incredible Hulk -- and it does have the Transformers and Star Wars brands. There's no way to spin this, I guess -- it just wasn't Mattel's day.
Disclosure: I own shares of Marvel; positions can change at any time.
Shares of world's second biggest toy company Hasbro Inc. (NYSE: HAS) have been been rallying in early trading after the company reported better-than-expected first quarter earnings, as its strong international business was able to offset declining domestic sales.
Hasbro said that its profit jumped 14% to $37.5 million, or 25 cents per share, helped by strong sales in its Transformers and Littlest Pet Shop lines. These numbers are up from $32.9 million, or 19 cents per share, a year earlier. Analysts, on average, expected earnings of 14 cents.
The toymaker also posted posted a respectable growth of 13% for its first-quarter revenue, which climbed to $704.2 million from $625.3 million. During the period, Hasbro benefited from the weak dollar which was a major driver for its international sales. The company saw overseas sales rise 22% to $248.3 million while revenue in the U.S. and Canada rose only 6% to $428.5 million. Analysts expected $582.2 million in sales in the first quarter, according to Reuters Estimates.
MOST NOTEWORTHY: PetSmart, Marsh & McLennan and Pinnacle Airlines were today's noteworthy upgrades:
Banc of America upgraded PetSmart (NASDAQ:PETM) to Buy from Neutral on valuation, as they believe the market is overly negative on the company's cyclicality.
Keefe Bruyette upgraded shares of Marsh & McLennan (NYSE:MMC) to Outperform from Market Perform on increased confidence management will be able to improve margins.
JP Morgan upgraded Pinnacle Airlines (NASDAQ:PNCL) to Overweight from Underweight citing the company's FCF and contract certainty.
OTHER UPGRADES:
Hasbro (NYSE:HAS) was upgraded to Buy from Hold at Needham.
Calyon raised Airtran Holdings (AAI) to Add from Neutral.
Liberty Entertainment (LMDIA) was raised at Merrill to Buy from Neutral.
According to analyst Felicia Hendrix, who works at Lehman Brothers (NYSE: LEH), Hasbro Inc. (NYSE: HAS), a toy company that competes with Mattel Inc. (NYSE: MAT), might do better than she previously expected. She originally was counting on a 2.5% drop in top-line sales for all of 2008, but she now believes that the business may beat such a dire call. Further, she thinks Hasbro can do $1.93 per share in 2008; previously, she was only willing to credit the company with $1.88 per share for the year. I like it; and in case you were wondering what 2009 might bring, she's thinking $2.10 per share is completely conceivable.
Ah, Hasbro, Hasbro -- I've been watching you, and I've thought about you, but I never pulled the trigger. I should have; I remember counseling myself when the stock was trading near its 52-week low that I maybe should take a chance on it. I was thinking about how the company had some cool catalysts coming up -- Marvel Entertainment's (NYSE: MVL) films Iron Man and The Incredible Hulk might be big blockbusters this summer, so Hasbro could end up selling a lot of product based on the properties. And then there's the upcoming Star Wars: The Clone Wars project -- come on, the figures and sets based on this one should do very well since Hasbro is an ace marketer of Star Wars merch. I should have been on the ball, I guess.
If Hasbro does around $2 in earnings in 2009, that gives the toy vendor a forward P/E of about 15 right now. That's attractive, especially considering Hasbro's current dividend yield. Hasbro looked more exciting to me about ten points ago, but I think it is nevertheless an interesting investment idea at the moment. I'll want to watch for any significant pullbacks in the share price that might make Hasbro even more interesting.
Disclosure: I own shares of Marvel; positions can change at any time.
4Kids Entertainment (NYSE: KDE) is an interesting company that attempts to cash in on fads for the younger set; it supplies programming for almost 200 affiliated stations of News Corp.'s (NYSE: NWS) Fox network on Saturday mornings. It also struck a deal to program the Saturday-morning kids block for The CW -- which is a joint venture between Time Warner (NYSE: TWX) and CBS (NYSE: CBS) -- beginning this fall. The company attempts to generate buzz for its properties so that it may sell a lot of merchandise tied to them.
Earlier in the week, 4Kids reported earnings for the fourth quarter. I didn't like the numbers (all the data here represent continuing operations). Revenues for the fourth quarter declined 10%, and the company lost $1.26 per diluted share versus a loss of $0.19 per diluted share in the year-ago quarter. For the full year, revenues dove over 22%, and the loss came in at $1.77 per diluted share; for comparison, the loss in the previous year was $0.13 per diluted share. Yeah, I didn't like the numbers, and I'd like to meet the person who did.
The problem with 4Kids is that, well, kids are fickle, and it's difficult to consistently make money from such a capricious audience. Yu-Gi-Oh! and Chaotic trading cards can be hot one minute, and then not so hot the next minute after that. It's all a crapshoot, and I suppose 4Kids will probably again hit upon a fad as significant as Pokemon in the future, but as to when that will happen, who knows. I do enjoy checking in on the company's latest mix of brands -- it currently promotes such diverse intellectual properties as Viva Pinata and Teenage Mutant Ninja Turtles. But, I don't like the losses or the random nature of this particular business. If I want to gain exposure to licensing and intellectual properties for kids, I would perhaps look at a Mattel (NYSE: MAT) or a Hasbro (NYSE: HAS), as I perceive them to be safer bets. 4Kids is fighting the good fight in terms of building brands, but I won't go near its stock since there are better alternatives out there.
Disclosure: I don't own any of the companies mentioned here.
According to LeapFrog's latest earnings report, the amphibious one hasn't jumped over to the black lily pad just yet. For the fourth quarter, revenue was flat at $181.3 million and the loss was 51 cents per share compared with a loss of 73 cents in the year-ago period. For the full year, revenue decreased 12% to $442.3 million, and the loss was $1.60 per share versus $2.31 in 2006.
Yeah, the losses may be narrowing, and the gross margins may be improving, but the company had negative operational cash flow, and it experienced write-offs for its major Fly Fusion brand. These are bad things, but the company has a few good plot points to its toy story: no debt, a good set of licensed products for its Leapster brand, and something called the Tag reading system, which Zack Miller covered back in January.
This one seems to be a no-brainer to me: LeapFrog just isn't worth one's investment dollars. Sure, it may come back at a later date on the heels of an innovative product launch, but it is a low-priced equity (currently trading in the area of $6 a stub as of this writing) that is losing money in a sector where better ideas exist. Don't leap into this one, folks! (Please tell me I didn't just write that...).
Hasbro (NYSE: HAS) is becoming quite the Hollywood power. Sure, the company helped launch a new sci-fi/fantasy franchise last year with Transformers, but that doesn't mean it wants to sit back and relax by the pool just yet. Instead, Hasbro is taking meetings and getting deals done.
General Electric's (NYSE: GE) Universal Pictures has entered into a six-year deal with Hasbro to produce four feature films using some of the toy maker's various intellectual properties. Included in the mix are the major boardgames we all know and love -- Candy Land, Clue, Battleship, and, of course, perhaps most famous of them all, Monopoly. The first project should be out around 2010.
I'm not sure about Candy Land, but a movie based on Monopoly would be pretty cool. I have no idea what Universal Pictures has in mind for these properties -- I mean, will the boardgames come to life and intrude upon the real world, or will the stories be set literally inside the boardgames themselves? -- but I think this deal has real potential. A few more big hits like Transformers will do wonders for Hasbro and its brand equity. And I do believe these movies could be big hits, especially if the right stars are attached (imagine Jim Carrey and Donald Trump in a Monopoly movie, for example).
JAKKS Pacific (NASDAQ: JAKK) didn't toy around during the holiday quarter -- it got serious and delivered some solid growth. For the fourth quarter, JAKKS increased its top line by nearly 20% to $285.1 million. Earnings per diluted share jumped 45% to $1.06.
The company cited various members of its toy portfolio as drivers for the Q4 season, including those joystick videogames that you plug directly into the TV -- you've got to admit, those are pretty fun, especially the one with Galaxian. Also, the company mentioned that items based on Disney (NYSE: DIS) properties turned out to be big helpers during Christmas. And, yes, they had to mention Hannah Montana -- they have a plug-and-play joystick title based on the pop princess. Sure, she's a fad, but she's still going strong for now.
JAKKS may play in the highly competitive world of toys, but it's definitely doing all right, even as it fights it out in the trenches with biggies Mattel (NYSE: MAT) and Hasbro (NYSE: HAS). It focuses on building little unique niches for itself, and it knows how to effectively work the licensing game; in addition to Disney stuff, JAKKS makes products based on Viacom's (NASDAQ: VIA) Nickelodeon characters and Neopets universe. The stock doesn't look too expensive here, so it's worth a look if you are looking to gain some exposure to retail toys, although I'd probably keep it on a watch list in anticipation of a pullback.
Here are some highlights from this past week's 
Toymaker 
Mattel
Shares of world's second biggest toy company 
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Comfort Zone Investing: Exploit volatility with constant dollar investing
Merck earnings preview: No miracles expected
Apple reports Monday -- buy AAPL before earnings?
