Shares of HSN Inc. (HSNI) have been steadily moving higher since the beginning of the year, and are now hovering close to its 52-week high of $49.71. This Zacks #1 Rank (Strong Buy) multi-channel retailer has surged 32.6% year-to-date, demonstrating its strong fundamentals.
The stock's momentum underscores HSNI's differentiated merchandise offerings, digital expansion and strategic investments in brands and acquisitions. The company will report its third-quarter numbers at the end of the month. Its second-quarter results included year-over-year earnings per share growth of 15.1% and a positive surprise of 1.7%.
What Makes HSN a Growth Pick?
HSNI will report quarterly results on October 31. The Zacks Consensus Estimate is currently at 50 cents per share, which is more than 16% better than 3 months ago. The company has outperformed the Zacks Consensus Estimate in 9 of the past 12 quarters with an average beat of 20.2%.
On August 1, HSN reported second quarter earnings of 61 cents per share, a penny ahead of the Zacks Consensus Estimate and up from last year's 53 cents.
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, while sales for the Cornerstone segment climbed 11% to $265.3 million with digital sales surging 17%.
Gross profit grew 7% to $293.4 million, and 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 Momentum Climbing
Over the past 90 days, the Zacks Consensus Estimate for 2012 rose 5.8% to $2.55 per share, implying year-over-year growth of 22.4%. For 2013, the Zacks Consensus Estimate is $3.09 per share, marking an increase of approximately 6.6% over the same time frame and suggesting year-over-year growth of 21.2%.
Valuation Stretched, Yet Lucrative
HSN currently trades at a forward P/E of 18.92x, reflecting a 24.5% premium to the peer group average of 15.20x. Its price-to-book ratio of 5.55 is substantially higher than the peer group average of 1.55. 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 13.7% 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 significantly above its peer group average of 11.9%. This implies that the company reinvests its earnings more efficiently than its peer group.
A Look at the Chart
Barring a few pullbacks, the stock has largely traded above its 200-day moving average since October 4, 2011. It has also remained above the 50-day moving average since June 4, 2012. Volume is fairly strong, averaging roughly 306K daily. Currently, the stock price is in the range of $48.00-$50.00, and has generated a solid year-to-date return of 32.6%, significantly higher than the S&P 500's return of 12.2%.
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. (VVTV), currently has a market cap of $2.68 billion.
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