Hasbro stock is a Buy, says Roth

The Q2 is looking challenging for toymaker Hasbro (Hasbro Stock Quote, Charts, News, Analysts, Financials NASDAQ:HAS) but there will be better days ahead, according to Roth Capital Markets analyst Eric Handler. In a quarterly preview on Friday, Handler reiterated a “Buy” rating and $74.00 target price, implying at press time a projected one-year return of 13.2 per cent.

Ahead of second quarter earnings due later this month, Handler said he’s leaving his estimates unchanged at revenue of $1,102.7 million, which is in-line with the consensus forecast, and EPS of $0.48 per share, which is below the Street’s call at $0.56. 

Handler said the company’s Q2 is facing very challenging comps due to last year’s same period benefitting from about $60 million of pulled-forward sales. As well, Handler is expecting all three of the company’s revenue segments to drop, with Hasbro’s Consumer Products division expected to see the greatest decline at negative 27 per cent year-over-year.

“Our recent checks suggest retail inventories have been coming down as expected although there could be some pockets with NERF and board games which continue into 3Q,” Handler wrote.

“Wizards & Digital Gaming is projected to decline nine per cent due to timing of last year’s set releases, but strong demand for the Universes Beyond set for Lord of the Rings should be able to offset any additional weakness in Consumer Products or provide a modest upside opportunity (the June 21 release date for the set likely limited reorder opportunities). Entertainment is estimated to fall nominally, although visibility has been very limited into TV episode deliveries or high margin library catalog sales,” he said.

At the same time, the analyst said seasonal shipping patterns in retail are expected to return to normal for the second half of the year, and he sees Hasbro as well positioned to return to positive revenue and EPS growth as well as margin expansion.

More long term, Handler is forecasting full 2023 revenue of $5,762.5 million, going to 2024 revenue of $5,989.3 million, with EPS expected to go from $4.52 per share in 2023 and to $5.10 per share in 2024.

Up around $95 in 2021 and early 2022, Hasbro shares have slipped to now the $60-$70 range. But Handler sees upside from here.

“We remain positive towards Hasbro’s restructuring efforts and the decision to emphasize fewer, more profitable brands while reducing costs by at least $250 million-$300 million. If management can successfully execute on these initiatives, we view Hasbro shares as inexpensive at less than 13x our 2024E EPS with an 8 per cent free cash flow yield and a 4.3 per cent dividend yield,” he wrote.