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$21.63 0.00 (0.00%)
7/23/2008 4:00 PM

JAKKS Pacific, Inc. (JAKK)

CAPS Rating:
*****

The Company is a multi-line, multi-brand toy company that designs, produces and markets toys and related products, writing instruments and related products, pet toys, treats and related products and other consumer products.

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Avatar piyopiyo13 (< 20) Submitted: 2/14/07 11:00 AM : Outperform Start Price: $21.88 JAKK Score: 10.73

Company manufactures and sells a diverse range of toys and electronics. Holds several licensing agreements with popular shows, including WWE, Dragonball, and Rocky, among others. Has a joint partnership with Atari to offer retro-arcade consoles, which proved to be a popular Christmas item in years past.

Risks include China and its incredible ability to infringe upon copyrights and manufacture things on the cheap, although this risk is mitigated in part by the quality of the retailers that stock Jakks products, such asToys R' Us and Wal-mart. Also, the shows that Jakks bases its products on may be faddish in nature, leaving uncertainties in Jakks future if it cannot secure licenses on the next "big thing". On a side note, Jakks had to recall the batteries on one of its RC products after dozens of them caught fire.

I estimated TTM FCF to be 70.75. Share dilution seems in recent years to be 3%, although the long term average is closer to 10% due to past acquisitions. Give the company's large cash reserve, I believe that issuance of shares to fund acquisitions will be minimal. WACC cost of equity was estimated to be 11.3%.

If the company grows at 3.4% for eternity, this would imply no growth = no acquisitions, meaning we should be able to assume 3% dilution. This gives a price target of $26.

If the company grows at its long term historical rate of 15% for the next two years, 6.5% for years 3-5, and 3.4% thereafter, that would probably require some acquisitions and hence a higher share dilution rate of 6%, implying a target price of $25.

In either case, the stock looks undervalued. Other metrics seem to confirm this. P/BV is a mere 1.04, Price to unadj FCF is 9.32, P/E is 9.65 and PEG is 0.71.

The few analysts covering this name seem to all have price targets around $20-21, so look for potential downgrades/upgrades in this name if they miss/beat earnings.

**Note - I own shares of every name that I've covered so far, including this one, and not necessarily from a similar price as displayed in CAPS

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Avatar piyopiyo13 (< 20) Submitted: 2/26/07 2:54 PM

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Co. announced 4Q earnings this morning. EPS ex-items beat street estimates by 2 cents. Sales were up 43% and earnings more than doubled vs. the same period a year ago. Management also guided earnings upwards to $75.8mm for 2007, or $2.39 per diluted share. Stock is trading up about 17% to 25.20 as I write this, placing it right in the range of my original price target of about $25, which assumed a 15% growth rate for years 1-2, 7.5% for years 3-5, and 3.4% thereafter. This growth curve may be conservative though, given that they just doubled their earnings. A special Care Bear 25th-anniversary line of stuffed animals may also help to generate above-average growth this year.

Assuming a 20-20-10-10-10-3.4% growth curve and 5% dilution instead gives a price target of about $29. This doesn't meet the 20% margin of safety that I look for when adding new positions, but I'm comfortable with holding on to the stock for now.

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