Revisiting Harry Potter Stocks on His 35th Birthday - Analyst Blog

Today is the birthday of JK Rowling's creation and wizard kid Harry Potter. While Harry Potter moved from the world of non-magical people called Muggles to the wizarding world of Hogwarts, investors lapped up the opportunity to benefit from the millions of copies sold and billions earned through the film series.

JK Rowling had become a billionaire author. Meanwhile, the publishers and related license holders also enjoyed massive gains. The film series was inspired, and the surging popularity led to a number of video games and licensing of over 400 Harry Potter products. The brand value is estimated to be at $15 billion.

Harry Potter Stock Index

In such case, imagine what it is to be associated with the Harry Potter brand. To make things easier for investors, a not-so-real index was actually created to gauge the performance of companies that are associated and reap benefits worth billions of dollars from the Harry Potter franchise. Called the Harry Potter Stock Index, this tongue-in-cheek index tries to provide exposure to the success by investing in the associated publisher, movie producers, merchandisers and advertisers.

This index is not an operational one, and one would obviously not find it in the real world. However, all companies in it trade actively and these include major names. Benefits from celebrity names or franchise are generally short-lived catalysts for stocks. But the gains from the Harry Potter phenomenon for the related stocks were significant.

Amazon AMZN continues to sell Harry Potter books, Electronic Arts EA continues to sell games while Scholastic SCHL has the publishing rights. In fact, Scholastic had released four new images of Potter characters earlier this year for the re-release of The Sorcerer's Stone . Further, Scholastic will release the first fully color-illustrated version of book in October.

Stocks with the Magic Wand

The last and the final installment of the movie series, Harry Potter and the Deathly Hallows - Part 2, had a budget of $250 million (shared with part 1) but it had a box office collection of $1.342 billion. Time Warner's following quarterly performance reflected the impact. Sales jumped 5% to $8.2 billion, driven by 7% revenue growth at Warner Bros, which in turn benefited from DVD and Blu-ray release of Harry Potter and the Deathly Hallows: Part 2.

Time Warner TWX is one of the other bellwethers to have raked in profits from Harry Potter magic. Before looking at how the other stocks are associated, let's take a quick look at the performance of "Harry Potter stocks."

Companies Harry Potter and the Deathly Hallows (Movie)
Part 1 (Release: Nov 2010) Part 2 (Release: Jul 2011)
Nov 5, 2010 - Dec 10, 2010 Jul 8, 2011 - Aug 5, 2011
Amazon 6.30% 15.6
Electronic Arts -2.80% 2.2
Fossil 27.70% 10.8
General Electric 4.50% -0.3
Hasbro 7.40% -8.7
Johnson & Johnson -2.00% -0.4
Coca-Cola 4.70% -1.9
Mattel 11.90% -0.3
Scholastic -1.00% 15.3
Time Warner -2.80% 2

How Harry Potter Stocks Look Now

Harry Potter is one of the most pre-ordered products from Amazon and five of them have been the best-selling book in the years they came out. Before the release of the 7 th book, Amazon reported 35% jump in revenues thanks to site traffic for the Deathly Hallows edition.

Amazon currently carries a Zacks Rank #1 (Strong Buy) and its Growth Style Score is 'A.' The projected EPS growth is above 100% and the company boasts current cash flow growth of 27.7%, way above the industry average.

Electronic Arts Inc.EA owns the right to Harry Potter computer and videogames.

EA has a Zacks Rank #2 (Buy). EA's fiscal third quarter growth was backed by strong game line-up and continuing growth in mobile markets. Going forward, we believe growing digital sales and cost containment will remain positive for margin expansion.

Fossil Group, Inc.FOSL produces Harry Potter watches.

FOSL carries a Zacks Rank #4 (Sell). The company is witnessing sluggish comps in the U.S. since the past few quarters due to weak traffic. Fossil remains exposed to unfavorable foreign currency translations as the majority of its products are sourced internationally.

General Electric CompanyGE owns 80% of NBC Universal, which wholly owns Universal Orlando theme park resort that houses The Wizarding World of Harry Potter.

GE carries a Zacks Rank #3 (Hold). General Electric reported relatively modest second-quarter 2015 results on sustained industrial focus. With the restructuring initiatives, General Electric expects operating earnings from the industrial business to aggregate over 90% of its total operating earnings by 2018.

Hasbro Inc.HAS had the rights to Harry potter trading card games, role-playing games, candy and youth electronics.

Hasbro carries a Zacks Rank #2. Hasbro's consistent efforts to establish its presence worldwide through strategic partnerships and rapid growth in the emerging markets are expected to continue to bode well for the company.

Mattel, Inc.MAT shares game rights with Hasbro, but it has the largest contract. It is the master toy licensee and the contract included Harry Potter Scene It, plush toys and action figures.

Mattel carries a Zacks Rank #3 and has Value Style Score of B. Its P/E ratio of 17.34 compared to industry's 26.25. While PEG ratio of 1.92 is in line with industry average, the Price/Sales ratio of 1.32 compares favorably with industry's 2.46.

Johnson & JohnsonJNJ created the Harry Potter bath and dental products.

Johnson & Johnson has a Zacks Rank #3. New products continue to perform well and the company is progressing with the resumption of supply of its OTC products.

The Coca-Cola CompanyKO had bought exclusive rights to tie-in their products in the first two movies. They reportedly paid $150 million.

Coca-Cola carries a Zacks Rank #3. Coca-Cola enjoys sound long-term fundamentals given its global reach, strong brand power, expanding international presence, solid global bottling network and an impressive cash position.

Scholastic Corporation has the exclusive publishing rights to Harry Potter books. Though JK Rowling owned rights to the series and sold e-books on Pottermore website, Scholastic kept the revenue share.

Scholastic has Zacks Rank #3 and Value Style Score of 'B.' Though the forward P/E of 27.25x is higher than industry's 17.74x, it has a favorable P/S ratio of 0.77 compared to industry's 1.23x. Remember, Scholastic is coming up with the color illustration in October.

Time Warner Inc. 's TWX Warner Brothers produces the Harry Potter motion pictures. Time Warner CEO Jeff Bewkes did acknowledge that the end of Harry Potter's days at the box office did not imply that the franchise would not continue to be 'source of strength' for the company. Time Warner earns licensing fees for The Wizarding World of Harry Potter from theme park Universal Orlando.

Time Warner has a Zacks Rank #3 with both Growth and Value Style Scores of 'B'. Time Warner's initiatives such as foraying into new markets and digital endeavors augur well for its operating performance. The company has been expanding its digital presence to facilitate consumers to enjoy contents in more platforms and devices.

The Magical Spell Survives

Companies with license agreements do depend on the sustainability of the phenomenon, helping boost the sales of Hasbro's and Mattel's Harry Potter toys, EA's video games or the online purchases through Amazon.

For Harry Potter, the products and the brand have become part of the consumer purchasing cycle. Success and sustainability of the brand also depends on the visibility and repetition. The flagging prominence of Harry Potter among the enthusiasts and fans is highly debatable. Perhaps the magic still works. For repetition and branding strategy, we have instances like Scholastic re-releasing the color illustration in October.

The digital platforms flourish with the news of Harry Potter's birthday, or the murmurs of the possibility of Harry Potter 8. This further proves the sustainability of the brand. Now, a new Harry Potter is coming next year, as a stage play though. While fans will be browsing for every news on it, the associated companies should see another opportunity to drive sales.

Let's wish a very Happy Birthday to Harry Potter!

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SCHOLASTIC CORP (SCHL): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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