Shares of multi-channel retailer HSN Inc. (HSNI) have been steadily moving higher since the beginning of the year, and are now hovering close to their 52-week high. The stock is a Zacks #1 Rank (Strong Buy) and has surged 24.8% year-to-date, demonstrating strong fundamentals.
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 year-over-year earnings per share growth of 15.1% and a positive surprise of 1.7%. Looking at the earnings surprise trend over the last 12 quarters, HSN has topped estimates by an average of 20.2%.
Healthy Second Quarter
On August 1, HSN reported second quarter earnings of 61 cents per share, a penny ahead of the Zacks Consensus Estimate. Earnings also increased from last year's 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 Estimates Climbing
Over the past 60 days, the Zacks Consensus Estimate for 2012 rose 5.4% to $2.54 per share, implying year-over-year growth of 22.2%. For 2013, the Zacks Consensus Estimate is $3.09 per share, marking an increase of approximately 6.6% and year-over-year growth of 21.4%.
Valuation Stretched, Yet Lucrative
HSN currently trades at a forward P/E of 17.83x, reflecting a 21.8% premium to the peer group average of 14.64x. Its price-to-book ratio of 5.22 is at a substantial premium to the peer group average of 1.39. 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.
A Look at the Chart
The stock has been largely trading 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 380K daily. The year-to-date return for the stock is 24.8% compared with the S&P 500's return of 9.9%.
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 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. (VVTV), currently has a market cap of $2.52 billion.
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