D'Oh! Analysts Underestimate Hasbro

Maybe analysts need to get out and play a little more. The pros really blew it in pegging toy maker and Motley Fool Stock Advisor pick Hasbro's (NYSE:HAS) earnings potential for the March quarter. Wall Street figured that Hasbro would merely break even as it grew its top line by less than 9%. Instead, Hasbro wound up earning $0.19 a share on a 34% surge in net revenues.

Sure, it's a seasonally sleepy period, but that doesn't mean Wall Street could afford to nap. Earnings surprises -- on both ends -- are bound to happen. Even the best model-crunching analysts aren't usually privy to corporate margin-enhancing initiatives. However, the well-paid pros blew it on the top line too, where channel checks are part of the process.

The real culprit here is underestimating the company's licensing deal with Marvel (NYSE:MVL). The five-year deal was penned 15 months ago, but went into effect this year. The licensing won't come cheap, with Hasbro agreeing to pay at least $205 million in fees. Hasbro gambled big several years ago -- and won -- when it paid for Star Wars licensing rights. But the Marvel deal could be even more valuable to Hasbro because there are several superhero properties like Spider-Man, X-Men, and Fantastic Four to exploit.

With Spider-Man 3 hitting theaters next weekend, the current quarter should be another winner. Two months later, the highly anticipated Transformers movie makes its way to your local multiplex. That's another Hasbro franchise that's a no-brainer to grow later this year.

Hasbro had success with its own lines too, singling out growth in Playskool, Play-Doh, Nerf, Littlest Pet Shop, and board games.

Hasbro's quarter follows last week's surprising earnings report from rival Mattel (NYSE:MAT). There was an unexpected profit there, too. So what's the deal? Is the toy industry shaking off its seasonality or are the companies simply being more efficient? Don't bet on the former. The third and fourth quarters are when toymakers like Hasbro, Jakks Pacific (NASDAQ:JAKK), and RC2 (NASDAQ:RCRC) fill retailer orders for the potent holiday shopping season. However, Hasbro's deal with Marvel -- a company that is used to hogging up the summer with its theatrical releases -- should give Hasbro a bit of a boost earlier in the year.

Note to analysts: Don't get caught short again in three months.

Hasbro and Marvel are recommendations for Motley Fool Stock Advisor subscribers. Play around with the newsletter by taking a free 30-day trial to see what other stocks are helping the service crush the market.

Longtime Fool contributor Rick Munarriz wonders who will have the hot toys for the 2007 holiday season. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.