Streetwise

Lauren Rudd

Sunday, December 18, 2011

Santa's Part-time Scribe

“Still carrying on the old family tradition by writing all night I see, he chuckled.”

Startled, I turned around. You would think by now I would have learned. "Nice to see you, I was getting worried," I said, with a sideways glance at the old calendar. By the way isn’t there usually quite a clatter when you arrive.

"A dry run with an empty sleigh,” he chuckled. “Get your notepad," he said settling back at my desk, "and I will tell you about the state of affairs in the land of make-believe."

According to the research firm NPD, consumers’ holiday spending profile is looking a lot like the ghost of Christmas past with 64 percent of those surveyed planning to spend the same on holiday gifts as last year, with only 9 percent planning to spend more.

The most sought after categories are again clothing, toys, and books. Moreover, discount stores are still the number one shopping destination.  Online or Internet shopping is again second and is expected to increase 17 percent to $46.7 billion, while total retail sales should grow by about 3 percent.

The calendar will also have an impact. There are five Saturdays between Thanksgiving and Christmas this year, meaning that you may have a chance for additional discounts at stores that did not see stellar sales initially. And Monday, December 26, is a holiday for many, thereby providing time to redeem those gift cards.

Toys embedded with technology are everywhere. It seems every toy can light up, talk, walk and sing. They can even sell themselves via motion-activated displays that see you coming and respond with a commercial.

Mattel reported recently that strong worldwide sales of Barbie dolls and “Cars 2” toys helped third-quarter net income rise nearly six percent. While Mattel’s Barbie remains the top toy for girls, with one being sold about every three seconds, competition is coming as Disney rejuvenates its “princess business.”

Disney princesses (Cinderella, Snow White, Sleeping Beauty etc.) exert a powerful influence on the imaginations of many girls, from how they play to what they wear. To that end, Disney is offering “Sofia the First,” a television movie and series centered on a girl princess. It’s a first because until now Disney’s princesses have all been adults.

Disney’s plan is to expand into a variety of consumer products. It is a solid business bet because the Disney Princess toy line generates about $4 billion in annual retail sales.

Meanwhile, Hasbro's results were in sharp contrast to those of larger rival Mattel with quarterly results falling short. For the third quarter, Hasbro's net revenue fell seven percent, hurt by declines in its boys, girls, and games and puzzles categories, although international revenue rose 23 percent.

"Fascinating," I said as I scribbled furiously.

Looking at the two major toy manufacturers from an investment perspective, I commented that a year ago my 2010 earnings estimate for Mattel was $1.75 per share with a 12-month target price on the shares of $30. Earnings for 2010 came in at $1.86 per share and the shares recently closed at $28.01.

Mattel’s intrinsic value using a discounted earnings approach is $36 per share, while the free cash flow model produces an intrinsic value of $60.

My earnings estimate for 2011 is $2.05 per share and $2.36 for 2012, with a 12-month target price of $33 per share for a 17 percent potential capital gain. There is also an indicated dividend yield of 3.20 percent.

My 2010 earnings estimate for Hasbro was $2.70 per share with a 12-month target price on the shares of $36. Earnings for 2010 came in at $2.63 per share and the shares recently closed at $34.81. Hasbro’s intrinsic value using a discounted earnings approach is $48 per share, while the free cash flow model produces an intrinsic value of $84 per share.

My earnings estimate Hasbro for 2011 is $2.75 per share and $3.02 in 2012, with a 12-month target price of $41 per share for a 17 percent potential capital gain. There is also an indicated dividend yield of 3.30 percent.

Then, just as I was about to ask a few questions, he just smiled and with a quick nod of his head he was gone. However, I am sure I heard him say as he drove out of sight, "Seasons greetings to all and to all a good night."

Lauren Rudd is a financial writer and columnist. You can write to him at LVERudd@aol.com. Phone calls accepted between 9 AM and 3 PM at (941) 346-5444. For back columns please go to www.RuddReport.com.