Shares of HSN Inc. (HSNI - Snapshot Report) have been steadily advancing since the beginning of 2012, and are now hovering close to its 52-week high of $55.97 touched on December 24, 2012. This Zacks #1 Rank (Strong Buy) multi-channel retailer has surged 52.1% in a year, demonstrating its strong fundamentals.
The stock’s momentum underscores HSNI’s differentiated merchandise offerings, digital expansion and strategic investments in brands and acquisitions.
The Rank Drivers
HSN has outperformed the Zacks Consensus Estimate in 10 of the past 13 quarters with an average beat of 20.5%. Moreover, strong third-quarter 2012 results and rising estimates aided the stock to attain a Zacks #1 Rank on January 1, 2013.
On October 31, 2012, HSN reported third quarter earnings of 61 cents per share that beat the Zacks Consensus Estimate of 49 cents by 24.5% and surged 48.8% from last year’s 41 cents.
Consolidated net sales of $778.8 million jumped 7% from the year-ago quarter with digital sales rising 16%. HSN, the namesake operating segment, witnessed sales growth of 5% to $537.4 million, including a 10% increase in digital sales, while sales for the Cornerstone segment climbed 13% to $241.4 million with digital sales surging 22%.
Gross profit grew 9% to $285.5 million, and gross profit margin expanded 70 basis points to 36.7%. Operating income came in at $49.3 million, almost flat with the year-ago quarter.
Earnings Momentum Climbing
Over the past 60 days, the Zacks Consensus Estimate for 2012 rose 3.9% to $2.64 per share, implying year-over-year growth of 26.7%. For 2013, the Zacks Consensus Estimate is $3.31 per share, marking an increase of approximately 5.4% over the same time frame and suggesting year-over-year growth of 25.6%.
Valuation Stretched, Yet Lucrative
HSN currently trades at a forward P/E of 20.90x, reflecting a 22.3% premium to the peer group average of 17.09x. Its price-to-book ratio of 6.50 is substantially higher than the peer group average of 2.22. Given the company’s compelling fundamentals, the premium valuation is justified and well supported by its long-term estimated EPS growth rate of 18% versus 15% for the peer group.
With respect to return on equity (ROE), the stock looks attractive. It has a trailing 12-month ROE of 26.7%, which is significantly above its peer group average of 7.6%. This implies that the company reinvests its earnings more efficiently than its peer group.
Headquartered in St. Petersburg, Florida, HSN is an interactive multichannel 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 via 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 $2.99 billion.