Hasbro Stock Is Still Not Worth a Look After Earnings

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HAS stock - Hasbro Stock Is Still Not Worth a Look After Earnings

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Hasbro (NASDAQ:HAS) moved higher by double digits in early morning trading. The Pawtucket, Rhode Island-based company blew away Wall Street estimates, despite the expected revenue drop occurring for HAS stock. Now, the company seeks to make its way as a traditional toymaker in a world of device-driven games. With a higher valuation and lower prospects for growth, investors likely need more than a strong earnings report to justify a position in HAS stock.

HAS Stock: Earnings and Revenue Beat Estimates

Hasbro reported Q2 earnings-per-share of 48 cents. Analysts expected EPS of 30 cents. While the beat may mitigate some of the pessimism, it still falls short of the 53-cent-per-share levels seen in the same quarter last year. Revenues also beat estimates, coming in at $904.46 million. This represents a 7% decline from year-ago levels.

However, the company still reported $66.37 million more in revenue than Wall Street expected. And one division has seen massive growth. Entertainment and Licensing, which makes toys based on programming from companies such as Disney (NYSE:DIS) and Viacom (NASDAQ:VIA, NASDAQ:VIAB), saw a 26% increase in revenue from the second quarter of last year. As our own Bret Kenwell predicted, movies like Black Panther and The Incredibles 2 could drive sales in this division. Here, the company delivered for HAS stock investors.

E-commerce, Electronic Games Have Hurt HAS Stock

Most analysts blame the closing of toy store chain Toys “R” Us as the reason behind the decline. Firms like Procter & Gamble (NYSE:PG) maintained its market share by controlling shelf space. Hasbro kept its dominance in board games in the same manner. However, in the world of e-commerce, any inventor can sell games on a Shopify (NYSE:SHOP) site independent of Hasbro or Mattel (NASDAQ:MAT).

Despite this silver lining, Hasbro cannot escape the popularity of electronic games. Firms such as Activision (NASDAQ:ATVI), Electronic Arts (NASDAQ:EA) and Take-Two (NASDAQ:TTWO) dominate that niche. Since children enjoy the devices on which they play these games, this can lead to children receiving less direct exposure to Hasbro products.

I said in a previous article that the firm should take a cue from its iconic board game and “play Monopoly.” This would entail buying out Mattel, taking them near dominance in non-electronic toys and games. However, this does not truly constitute a monopoly in a world where e-commerce offers small firms the ability to market their games worldwide. Hence, it could pass muster with antitrust regulators. Also, much like shopping in stores still occurs, it remains likely that children will always want a play experience not found on tablets or smartphones.

Stay Cautious on HAS stock

While this bodes well for HAS stock, I would caution against buying the equity here. Yes, its dividend yield of just under 2.4% could draw investors. Also, HAS stock has enjoyed a strong move higher as buybacks and fading pessimism help the equity.

However, the forward price-to-earnings ratio stands at almost 22. Analysts forecast average annual growth of 5.95% over the next five years. In my view, these figures do not justify buying HAS stock. The market offers higher-growth stocks at a lower P/E ratio. Given the metrics, investors will better serve themselves by investing their capital elsewhere.

The Bottom Line on HAS stock

Market and stock fundamentals fail to make the case to buy HAS stock despite the fact that it beat earnings and revenue estimates. The latest figures show the declines came in much lower than many had feared. The revenue figures by division also show Hasbro has carved out a strong niche in its Entertainment and Licensing division.

Still, in a world of electronic gaming, Hasbro finds itself stuck in a less popular niche. Such market conditions could benefit Hasbro. They could allow for a takeover of archrival Mattel and a dominant position in the traditional game niche. But this still leaves the company in a slow-growth niche that will struggle to move far beyond survival.

The bounce in HAS stock serves as a shot in the arm for current stock holders. However, given a relatively high P/E ratio, investors should probably look elsewhere for stock price growth and dividend yield.

As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.


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Article printed from InvestorPlace Media, https://investorplace.com/2018/07/hasbro-has-stock-not-worth-a-look-after-earnings/.

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