This week at Singular Research, we took a closer look at a household name that may resonate with consumers, but may not be as well known in the financial markets. For three decades, the Home Shopping Network has been a pioneer in selling a wide variety of merchandise on TV. However, its parent company, HSN, Inc. (HSNI), has expanded its channels to various new media platforms on the web through HSN.com, on mobile devices, and its outlet stores.
HSN, Inc. has specialized in marketing and selling third party and private label merchandise like jewelry, fashion apparel and accessories, beauty and wellness products, housewares, home fashions, electronics, culinary, and fitness and other products directly to consumers. The company also offers home furnishings, including indoor/outdoor furniture, window treatments, and other home related goods; and apparel and accessories through Cornerstone, which consists of various branded catalogs and related Web sites, including Frontgate, Ballard Designs, Garnet Hill, Smith and Noble, Grandin Road, Territory Ahead, Travel Smith, and Improvements catalog, as well as 19 retail and outlet stores.
We feel that the company will continue to execute solidly in a difficult environment, and therefore increased our price target to $47.50 from $44.00 and maintained our Buy rating. John Curti, Singular's analyst covering HSNI, says the company's free cash flow capability and the return of capital program (cash dividends and share repurchases) provide financial flexibility and support for the stock. With that said, we have reduced our 2012 and 2013 estimates to $2.38 and $2.71 from $2.48 and $2.90, respectively, to reflect slower sales growth and a more conservative share repurchase program than previously forecast.
In the fourth quarter of 2011, the company increased revenues by 4 percent year-over-year to $955.0 million from $915.2 million. Revenues were above our estimate of $950.9 million. Operating margins rose 8.8 percent but were well below our estimate of 9.2 percent.
Adjusted earnings per share for the quarter was $0.89 versus $0.77 from the same period for the prior year. GAAP diluted EPS was $0.76 compared to $0.69 the year prior, which is below our $0.81 estimate and consensus of $0.81.
So we do expect HSNI to continue to execute in a tough environment, albeit at a more moderate pace in 2012 as the company deals with slower sales growth and increased investment spending.
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