Shares of top toymaker Hasbro (NASDAQ:HAS) have endured a difficult year, shedding around 37% of their value year-to-date. The fast-falling discretionary stock could find itself hitting lows not seen since the depths of the 2020 stock market crash. With muted expectations for the holidays and the entirety of next year, I view Hasbro as an intriguing long-term value option as the firm looks to pull various levers to turn a corner.
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Hasbro Stock: Expectations May be Too Muted for 2023
Looking to 2023, expectations are pretty downbeat for the toymaker. The firm will need to tackle recession headwinds as it looks to sell the indie film and TV studio it overpaid for just a few years back.
The company’s Entertainment One (eOne) is up for sale. The firm is looking to shift its focus back to its core business of toys and games. Undoubtedly, a sale of the TV and film business will raise a considerable sum. Though, it’s doubtful Hasbro will get back what it paid ($4 billion) back in 2019.
In any case, it seems like Hasbro learned an important lesson that wandering outside of its circle of competence comes with considerable risks. The TV and film business has soured significantly after the pandemic-era boom. With considerable investment requirements with uncertain returns, TV and film is no longer the hot segment to diversify into.
As the company returns to its roots, I’d look for the ailing toy maker to claw back a bit of market share from rivals such as Canada’s Spin Master (TSE:TOY) — a rising star in the toy industry.
Though Spin Master made major strides over the years via strategic acquisitions and investments in digital products, Hasbro still has the means to widen the gap with its rivals, thanks to its robust brand lineup. Power Rangers and Transformers are two incredible brands that could be a source of meaningful growth, moving forward.
Once Hasbro finds a buyer for its eOne assets, it’ll have the financial flexibility to invest in its core brands. The company noted its desire to invest more in the popular Transformers brand. Such investments are likely to have a better and more certain payoff than bets in TV and media.
Indeed, Hasbro could be in for quite a transformation of its own over the next year or so. With a third-quarter flop and downbeat expectations ahead of the holidays already factored in, I think it’s tough to pass up the $8.6 billion toy giant at these depths. I am bullish on HAS stock.
Hasbro’s Quarterly Fumble Seems Overdone
Hasbro missed the mark for the third quarter, with EPS coming in at $1.42, just shy of estimates calling for $1.52. Net revenue of $1.68 billion (down 15% year-over-year) also missed estimates by $50 million. Adding even more salt in the wound, gross margins sunk to 65% from 69.1% over the same quarter a year ago.
Industry headwinds are largely to blame. Still, the company didn’t seem to be doing itself any favors. Fortunately, its newly-appointed CEO, Christian Cocks, could help the firm pivot and march higher again.
For now, Hasbro stock looks like a sinking ship as discretionary demand looks to slip further in an economic downturn. Regardless, Hasbro stock is incredibly cheap, and a return to its core competencies could help the stock be ready for the economic rebound once it arrives.
Innovation is a critical area that can help Hasbro power past rivals, even as the lights go out on the toy industry for and after the holiday season.
After the latest slip, HAS stock trades at 20.5x trailing earnings, 1.3x sales, and 21.8x cash flow. The dividend is bountiful, yielding 4.6%, while the low 0.77 beta suggests HAS stock could be a less choppy play than the broader market going into the new year. The name has already been punished so severely.
Is Hasbro Stock a Buy, According to Analysts?
Turning to Wall Street, HAS stock comes in as a Moderate Buy. Out of nine analyst ratings, there are five Buys, three Holds, and one Sell recommendation.
The average Hasbro price target is $88.63, implying upside potential of 42.6%. Analyst price targets range from a low of $75.00 per share to a high of $113.00 per share.
The Bottom Line on HAS Stock
Hasbro’s return to its core could bode well for the firm as it looks to turn a corner in a recession year. This week, Bank of America (NYSE:BAC) Securities downgraded Hasbro stock to Sell, citing an overproduction of “Magic: The Gathering” cards.
Such downgrades could add further pressure on the stock over the coming weeks. Regardless, most Wall Street analysts remain upbeat on the name while it’s in the doghouse.
