Shares of HSN Inc. (HSNI - Snapshot Report) have been attaining new 52-week highs since it posted healthy second quarter 2012 results on August 1 that included year-over-year earnings per share growth of 15.1% and a positive surprise of 1.7%.
Since its second quarter report last month, shares of this Zacks #1 Rank (Strong Buy) company have escalated about 18% to hit another 52-week high on September 20. Moreover, with an impressive year-to-date return of 32% and strong results, this stock offers an attractive investment opportunity.
The Rank Driver
The stock’s uptrend can be attributed to differentiated merchandise offerings, digital expansion, strategic brand investments and acquisitions. The strength is further evident from its second-quarter 2012 results, which included strong year-over-year earnings per share growth. Looking at the earnings surprise trend over the last 12 quarters, HSN has topped estimates by an average of 20.2%.
HSN reported second quarter earnings of 61 cents per share, a penny ahead of the Zacks Consensus Estimate. Earnings also augmented from the year-ago figures of 53 cents due to top-line growth.
Consolidated net sales of $767.2 million jumped 6% from the year-ago quarter with digital sales rising 12%. HSN, the namesake operating segment, witnessed sales growth of 4% to $501.9 million, including an 8% increase in digital sales, whereas Cornerstone segment sales climbed 11% to $265.3 million with digital sales surging 17%.
Gross profit grew 7% to $293.4 million, whereas gross profit margin expanded 20 basis points to 38.2%. Operating income rose 8% to $65.3 million and operating margin increased 10 basis points to 8.5%.
Earnings Estimate Revisions
The company’s estimates for fiscal 2012 and 2013 witnessed a surge of 14 cents and 19 cents, respectively, in the last 60 days. The Zacks Consensus Estimate for fiscal 2012 added about 5.8% to $2.55 per share in the past 2 months, reflecting a year-over-year growth of 22.4%. The Zacks Consensus Estimate for fiscal 2013 is up 6.6% to $3.09 per share over the same period, representing a 21.2% year-over-year jump.
HSN currently trades at a forward P/E of 19.01x, reflecting a 24.7% premium to the peer group average of 15.25x. Its price-to-book ratio of 5.58 is at a substantial premium to the peer group average of 1.43. Given the company’s compelling fundamentals, the premium valuation is justified and well supported by its long-term estimated EPS growth rate of 20% versus 13.8% for the peer group.
With respect to return on equity (ROE), the stock looks attractive. It has a trailing 12-month ROE of 23.9%, which is substantially above its peer group average of 11.9%. This implies that the company reinvests its earnings more efficiently than its peer group.
About the Company
Headquartered in St. Petersburg, Florida, HSN is an interactive multi-channel retailer operating under two segments, the namesake HSN and Cornerstone. The company provides jewelry collections, fashion attire and accessories, beauty products, housewares, electronics products, and other items through the HSN television networks, HSN.com, mobile applications, and brick and mortar stores. Cornerstone offers home related merchandises, apparel and accessories under brands such as Ballard Designs, Chasing Fireflies, Frontgate, Garnet Hill, Grandin Road, Improvements and TravelSmith. HSN, which competes with ValueVision Media Inc. ), currently has a market cap of $2.69 billion.