The renowned toymaker Hasbro (HAS) has rallied over 44% since its November 2023 lows as it extends beyond children’s toys into digital games and entertainment. It posted recent quarterly earnings that exceeded top-and-bottom-line expectations, and projections indicate that it is positioned for a strong momentum shift in 2025. Also driving the shares’ momentum is a potential bid to acquire long-time competitor Mattel (MAT), and potentially becoming a monopoly in the games industry
Hasbro’s stock offers promising upside potential and an appealing 4.38% dividend yield, which presents a solid opportunity for investors seeking income generation and long-term growth.
Hasbro’s Iconic IP
With a diversified portfolio of iconic brands, Hasbro is a global leader in developing and producing toys, games, and entertainment. The company’s portfolio includes renowned brands such as Monopoly, Magic: The Gathering, and Dungeons & Dragons, in addition to several premier partner brands such as Star Wars, Marvel, and Power Rangers.
The recent news of a potential buyout offer from a private equity firm for long-time competitor Mattel has sparked speculation. Given its history of making approaches to acquire Mattel, Hasbro is widely believed to likely consider a counteroffer. Its collaboration on cross-branding IP last year has further strengthened this belief, paving the way for a potential partnership that could significantly boost Hasbro’s market position and appeal to investors.
Hasbro’s Recent Financial Results & Outlook
For the second quarter of 2024, Hasbro reported results that surpassed analysts’ expectations. Revenue of $995.30 million beat consensus estimates of $943.56 million. Despite this, revenue dropped 18% year-over-year, primarily due to the eOne divestiture (sold to Lionsgate), with revenue falling 6% excluding the divestiture. Wizards of the Coast and Digital Gaming segment enjoyed a 20% growth, balancing declines in the Consumer Products and Entertainment segments.
The company’s operating profit stood at $212 million with an operating margin of 21.3%. These figures factor in $37 million of intangible amortization related to eOne, disposal of business loss, and the company’s transformation costs. Adjusted operating profit was $249 million, a $112 million increase from the previous year, while the adjusted operating margin was 25.0%, a 13.7 percentage point increase from the prior year.
These figures were driven by a favorable business mix, a productive supply chain, and lower operational costs. The reported adjusted net earnings per share (EPS) of $1.22 significantly beat analysts’ projections of $0.78.
The company declared a quarterly cash dividend of $0.70 per common share, a dividend yield of 4.56%, paying out $97 million in cash dividends to its shareholders in early September.
Management has issued guidance for 2024, anticipating a drop in revenue across all sectors, with the Consumer Products Segment seeing a 7-11% decrease, Wizards of the Coast Segment down 1-3%, and the Pro-Forma Entertainment segment down by $15 million. Adjusted operating margins of approximately 42% and 60% for each segment, respectively. Total adjusted EBITDA is projected to be $975 million to $1.025 billion. The company aims for a gross savings target of $750 million by the end of 2025.
What Is the Price Target for HAS Stock?
The shares have been on a downward trajectory since hitting all-time highs in 2019. However, they have rebounded this year, climbing roughly 30% year-to-date. The stock trades in the upper half of its 52-week price range of $42.66 – $73.58 and demonstrates positive price momentum, trading above its 20-day (59.81) and 50-day (59.19) moving averages. The shares appear fairly valued, with a P/S ratio of 2x, roughly in line with the Leisure industry average of 1.9x.
Analysts following the company have been constructive on the stock. For instance, Morgan Stanley analyst Megan Alexander recently raised the price target on the shares from $78 to $79 while maintaining an Overweight rating, noting the “strong” Q2 beat and management’s conservative guidance for the rest of the year, leaving room for continued upward revisions.
Based on nine analysts’ recommendations and price targets, Hasbro is rated a strong buy overall. The average price target for HAS stock is $76.38, representing a potential upside of 16.59% from current levels.
Bottom Line on Hasbro
After Q2 results surpassed expectations, Hasbro is poised for continued growth into 2025. With the company possibly considering a rival bid for competitor Mattel and a substantial dividend yield of 4.38%, Hasbro presents an enticing opportunity with upside potential for income investors.
