LeapFrog Enterprises Inc.
) has delivered nine consecutive positive earnings surprises with
an average beat of almost 21.9%. Given an increased guidance for
2012, strong earnings estimate revisions and an expected long-term
earnings growth rate of 20.0%, this Zacks #2 Rank (Buy) educational
toy maker looks like a solid growth pick.
Terrific Second Quarter
On August 1, LeapFrog reported a second quarter loss per share of
12 cents, narrower than the Zacks Consensus Estimate for a loss of
18 cents (a positive surprise of 33.3%). The loss improved from the
year-ago loss per share of 21 cents. The strong results were driven
by solid top-line growth.
Net sales escalated 31% year over year to $71.5 million, beating
the Zacks Consensus Estimate of $66.0 million. Foreign exchange had
an unfavorable impact of 1%. Revenue was mainly driven by strong
content sales and higher demand for LeapPad.
LeapFrog experienced net revenue growth on a worldwide basis. In
the U.S. segment, net revenue shot up 26%, while the international
segment advanced 46%.
Gross profit expanded 50% to $29 million and gross margin expanded
500 basis points to 39.9%. The increase in gross margin was driven
by strong sales volume, a favorable product mix and low products
Based on healthy second-quarter results, management raised its
earnings per share projection to between 61 cents and 66 cents from
the previous expectation of 52 cents to 57 cents. Net sales are
estimated to increase 13%-15%, up from the previous expectation of
Earnings Estimates Climbing Higher
Over the past 60 days, the Zacks Consensus Estimate for 2012
increased 11.5% to 68 cents, implying a massive year-over-year
growth of 125.0%. For 2013, the Zacks Consensus Estimate is 79
cents, reflecting an upswing of 3.9% and suggesting year-over-year
improvement of about 17.0%.
LeapFrog's valuation presents a mixed picture. On a price-to-book
(P/B) basis, shares are trading at 2.18x, compared with the peer
group average of 2.02x. Also, its trailing 12 months P/E of 14.86x
is slightly above the peer group average of 14.47x.
However, on a forward P/E basis, shares trade at 12.77x, a discount
to the peer group average of 13.12x. Also, the company has a
price-to-sales (P/S) ratio of 0.99, a 10.8% discount to the peer
group average of 1.11.
Moreover, the company has a trailing 12-month return on equity
(ROE) of 17.5%, which is far above its peer group average of 2.5%.
This implies that the company reinvests its earnings more
efficiently than its peer group. It also has a PEG ratio of 0.64,
which is less than 1, indicating that the stock is reasonably
valued given the expected growth.
Chart Reveals Strength
Technical indicators show that LeapFrog has been trading above its
200-day moving average since November 2, 2011. Moreover, the
stock's year-to-date return is roughly 54.2% compared with the
S&P 500's return of 16.1%. Volume is fairly strong, averaging
roughly 1229K daily.
Moreover, LeapFrog provides an attractive entry point for investors
at the moment, as shares have moved a bit lower since Sep 10, when
its competitor Toys "R" Us announced its plans to launch its own
tablet computer for kids.
Based in Emeryville, California and founded in 1995, LeapFrog is a
leading designer, developer and marketer of innovative,
technology-based educational products and related proprietary
content, dedicated to making learning effective and engaging. With
a market capitalization of $579.1 million, LeapFrog primarily
competes with Hasbro Inc. (
) and Mattel, Inc. (
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