News Analysis date published New: 
Thursday, June 24, 2010 - 12:10
New Date created: 
Thursday, August 15, 2013 - 04:50
New Date last updated: 
Thursday, June 24, 2010 - 12:10

Thursday Winners: Discover Financial and Hasbro

Thursday, June 24, 2010 - 12:10pm

Among the biggest winners in Thursday's early trading are Hasbro (NYSE: HAS) and Discover Financial Services (NYSE: DFS).

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Top Percentage Gainers -- Thursday, June 24, 2010
Company Name (Ticker) Intra-Day Price Intra-Day
% Gain
52-Week High 52-Week Low
Discover Financial
$14.35 +2.4% $17.36 $9.00
Hasbro (NYSE: HAS) $42.06 +2.3% $43.39 $22.79

*Table includes companies with minimum market capitalizations of $200 million and three month trading volumes of at least 100,000 shares. All percentage returns are listed as of 11:40AM Eastern Standard Time. Click on ticker symbols for up-to-the-minute price quotes and percentage gain data.

Hasbro’s Cash Flow Appeal

A leading private equity (PE) firm apparently asked to look under the hood at toy and game maker Hasbro (NYSE: HAS), according to The Wall Street Journal. Shares were up nearly +10% in pre-market trading. But right after the market opened, Hasbro issued a statement that it’s not for sale. So shares are settling for a modest +2% gain in Thursday trading in an otherwise down market.

A buyout made sense. PE firms like to buy companies that generate a high degree of cash flow, so they can more easily secure loans to fund the deal. And Hasbro looks set to become a cash flow machine, as we noted last month.

Presumably, any potential buyer would have to pay a sweet price, as many promising aspects of Hasbro’s business model have yet to hit the income statement. For example, the new children’s TV network The Hub, a joint venture with Discovery Communications (Nasdaq: DISCA), has yet to go live, but if it garners solid ratings, would quickly become a valuable asset. And there is a big slate of motion pictures that use Hasbro toy and game characters set for release during the next 24 months.

Action to Take --> We speculated that shares of Hasbro would eventually trade up to $60, which is probably what PE buyers would need to offer to snatch this price. Even absent a buyout, shares have considerable upside.


Consumers Slowly get Better

Shares of Discover Financial Services (NYSE: DFS) are getting a +2% lift after the credit card issuer posted solid quarterly results after the market close on Wednesday. Most important, Discover’s clients are starting to get caught up with their overdue bills, as the number of accounts in delinquency has started to shrink. Credit card issuers are required to estimate what percentage of their accounts will become uncollectable. That metric shrank sequentially from 8.51% to 7.97%, and management believes it may fall as low as 7.50% in the current quarter. That number is still too high, but at least it’s going in the right direction.

Just because consumers are increasingly able to pay their bills, does it mean that they will start spending more? Discover says yes. Customers charged $23 billion worth of goods and services on the eponymously-named cards in the most recent quarter, +6% higher than a year ago. That helped boost EPS (excluding charges) to $0.46, more than double the year-ago take, and well above the $0.09 consensus forecast.

Action to Take --> Barring a double dip, earnings look set for an upward revision. 2011 profits may come in closer to $2 a share. And that might push shares up to the $20 mark, more than +30% above current levels. Shares have been stuck in the $14 to $16 range since last fall, but a breakout may be due.

David Sterman does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.

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