(By Kevin Donovan) JAKKS Pacific Inc. (JAKK) is the little guy in the troika of publicly traded toy companies, but like your baby brother, it's a feisty son of a gun with believers inside and outside the family.
Somebody already thinks JAKKS, trading at $15.71, is worth $20 a share. That's the unsolicited offer made by Oaktree Capital Management and the price at which JAKKS bought back shares in a self-tender offer aimed at fending off the advance earlier this year. We believe that is the once and future share price and would be buyers at these levels.
Meanwhile, the Malibu, Calif.-based JAKKS is growing through acquisition. It announced today it was buying Ohio-based Maui, Inc., a manufacturer and distributor of spring and summer activity toys, outdoor sports related toys, impulse toys including the popular Wave Hoop and Sky Ball products under the Maui Toys brand. It expects the acquisition to be accretive to 2013 earnings but doesn't know about this year pending allocation of the purchase price, which was not disclosed.
The purchase includes Maui's Hong Kong affiliate A.S. Design Limited, and JAKKS CEO Stephen Berman expects the purchase to diversify distribution of products in international markets.
JAKKS designs and markets toys on its own and as a licensee. The portfolio includes action figures, electronics, dolls, dress-up, role play, Halloween costumes, kids' furniture, vehicles, plush, art kits, and ride-on vehicles among other areas. It is a licensee of several hundred nationally and internationally known trademarks including Nickelodeon, Warner Bros., Ultimate Fighting Championship, Hello Kitty, Graco, Cabbage Patch Kids and Pokémon.
On the valuation front, JAKKS trades at an enterprise value to trailing 12 months' EBITDA multiple of 7.87, in line with rival Hasbro's 7.33 but at a discount to industry leader Mattel's 10.48. The shares are up 12.62% so far this year versus Hasbro's 10.86% and Mattel's 26.75% gains. JAKKS pays an annual dividend of $0.40, a yield of 2.55% at current prices compared with 4.15% and 3.59% for Hasbro and Mattel, respectively.
The challenge for JAKKS has been margin performance. In the second quarter, results of which were released last week, JAKKS beat analysts' estimates on the top line, posting revenue of $145million, up from $131.9 million in the second quarter of 2011. But earnings per share excluding extraordinary items were $0.06, half the number expected by analysts.
"We are pleased with the sales growth in the second quarter and year to date, and we are on track to meet our guidance ranges for the full year," commented CEO Berman, President and CEO, JAKKS Pacific.
The second quarter included expansion of the Monsuno toys in the US and the launch internationally of the Monsuno animated series and related toy products. The company also launched its Winx Club dolls and Big Wheel line at select major retailers.
For 2012, the company continues to expect an increase in net sales of 6.2% to 7.4% to approximately $720 million to $728 million, with revised diluted earnings per share in the range of approximately $1.04 to $1.08, which includes the effect of the self-tender. The company's previous guidance for diluted earnings per share was in the range of $1.01 to $1.07.