Longterm Investors Know Hasbro, Inc. Stock Eventually Will Get Better

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Hasbro stock - Longterm Investors Know Hasbro, Inc. Stock Eventually Will Get Better

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It’s no surprise that Hasbro, Inc. (NYSE:HAS) shares are off for the year, in light of the wrenching changes in the brick-and-mortar retail industry. Note that the return is -6.7%. Yet Hasbro stock still is quite favorable when compared to other toy manufacturers. Keep in mind that – in 2018 – Mattel, Inc. (NASDAQ:MAT) is off about 14%.

So what now for Hasbro stock? Is it a value at current levels? Or should investors wait?

Well, I think Hasbro does look attractive. But investors will likely have to be very patient.

Let’s face it, the liquidation of Toys R Us is a seismic event in the toy industry, as the company generates a whopping $11 billion in annual revenue (the total toy sales in the US are about $27 billion). This will mean toy manufacturers will have to rush to find ways to make up for the shortfall, which could prove quite difficult and time consuming.

But the loss of Toys R Us will not just be about distribution. For decades, the company has essentially been a laboratory to test out new toys, which have led to surprise breakout hits. This is in contrast to other retailers like Walmart Inc (NYSE:WMT) and Target Corporation (NYSE:TGT) that are mostly focused on low costs and high volumes.

As for Hasbro stock, there already have been signs of weakness, and they are not all due to the problems with Toys R Us either. During the all-important holiday quarter, there was a 2% drop in revenues to $1.6 billion, which was $120 million below the average forecast from analysts.

Some of the key issues included the slackening in demand for Star Wars merchandise as well as the slowdown in Europe.

HAS Stock Advantages

Even with the challenges, Hasbro still has some considerable advantages. The company controls a strong portfolio of standout brands, such as Monopoly, G.I. Joe, Parker Brother, Kenner, Play-Doh and Milton Bradly. And yes, there are strategic licensing agreements, such as with Walt Disney Co (NYSE:DIS).

No doubt, Hasbro’s scale and expertise are differentiators that allow the company to get the interest of strong partners.

Next, Hasbro has been investing more in digital offerings. Hey, many children have smartphones and tablets, right? Definitely. So Hasbro has been smart to forge alliances with companies like Activision Blizzard, Inc. (NASDAQ:ATVI). The company also recently purchased Backflip Studios, LLC, which is a top mobile game developer.

Something else: Hasbro stock is trading at attractive levels, with the forward price-to-earnings ratio at 15X. What’s more, the dividend yield is at 3%.

Bottom Line on HAS Stock

The overall impact of the Toys R Us liquidation on Hasbro stock is tough to gauge. The company gets about 9% of sales from the retailer.  Yet not all of this will suddenly evaporate.

For example, analysts at KeyBanc Capital Markets estimate that about 30% of the sales will be absorbed by other retailers that eagerly will be looking at opportunities to capture market share.

But then again, the Toys R Us event is certainly unique – and the impact could easily be more severe. There will also inevitably be disruption as Hasbro transitions its business. This will mean less time and resources to devote to efforts like new products, licensing arrangements and marketing campaigns.

However, I believe the company will ultimately manage through all this and get back on the growth path. But it will likely take a few years. In other words, there is probably no reason to rush into Hasbro stock right now.

Tom Taulli is the author of High-Profit IPO StrategiesAll About Commodities and All About Short SellingFollow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.


Article printed from InvestorPlace Media, https://investorplace.com/2018/03/hasbro-stock-eventually-better/.

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