Hasbro, Inc. (NASDAQ:HAS) — Yesterday, this toy company announced a third-quarter sales increase of 14%, mostly due to its new line of Walt Disney Co (NYSE:DIS)-themed dolls.
The sales increase appeared due to a license agreement with DIS for its “princess dolls” and toys from the movie “Frozen.” The deal with DIS was at the expense of rival Mattel, Inc. (NASDAQ:MAT) early this year.
In addition to the “girl’s portfolio” with its sales increase of 57% in the quarter, the “boy’s division” increased sale by 2%, mainly from “Star Wars”-based products, plus Nerf blasters and Transformers figurines.
Its preschool division was the only one down, off because of a decline in Playskool products.
Standard & Poor’s forecasts earnings of $4.09 in 2016 and $4.57 in 2017 for a forward (’17) price-to-earnings ratio of 19X earnings, a premium in the toy sub-sector.
HAS stock is currently selling at between 18X and 21X-plus this year’s earnings estimates and nearly 20X times 2017 estimates, a considerable premium to its leisure product sub-sector peers. Moreover, technically, the stock is in a pronounced “Bear Channel” that began in April at over $88 per share. The stock rallied several times since April only to be turned back by its bearish resistance line and 50-day moving average.
High volume accompanied yesterday’s gap from about $78 to $79, and the 50-day moving average was pierced. However, the bearish resistance line at slightly under $84 has held.
The announcement created, in my opinion, an excellent short-sale prospect: Sell HAS stock at $84 or higher with a downside target of $75 for a proposed short-term gain of about 12%.
As with all short-sales, please check with your broker for any special problems shorting this stock, and enter a stop-loss at $86 to protect against a theoretically unlimited loss.
