Why Did Hasbro Go Up?

This year Hasbro stock has taken investors on an exhilarating ride from below $50 per share to above $70 per share.

Hasbro’s share price surge has been fueled by a cocktail of financial results, a significant asset transaction, and encouraging comments from industry analysts.

Before we dive into the meat and potatoes of this story, let’s take a moment to set the scene.

Hasbro, just like other companies in the toy industry, has faced some serious headwinds since 2020. Consumers are changing their spending habits; families who once splurged on Hasbro’s toys and board games are now more inclined to drop their cash on dining experiences or weekend getaways.

So what has Hasbro done in response? They’ve sharpened their pencils and made some savvy operational moves. These include cutting loose some less profitable products and getting a better handle on their inventory.

What was the fallout? A dip in quarterly revenue down to $1.21 billion—a 9.6% year-over-year tumble. But here’s the kicker: that still beat Wall Street’s forecast and analysts as a whole have pegged fair value at $82 per share.

On the less rosy side, adjusted earnings per share took a hit, dropping from $1.15 to $0.49, which missed the mark compared to analysts’ forecast of $0.57.

Peppa Pig Sold To Lions Gate

Perhaps the most headline-grabbing development was Hasbro’s decision to part ways with its eOne production studio.

Acquired in 2019, eOne was home to iconic children’s IP like Peppa Pig. The studio was sold to Lions Gate Entertainment for a cool $500 million. While Peppa Pig and other children-centric IPs will stay within Hasbro’s portfolio, adult content is now Lions Gate’s domain.

CEO Chris Cocks explained this sale as a strategic shift towards an “asset-light” entertainment model. This tactic frees up capital and resources that can be redirected towards core competencies. The day the news broke, the stock inched up by a mere 1%, but keep reading; the best was yet to come.

How Will Hasbro Fare In The Future?

Peering into the future, Hasbro is bracing itself for a revenue drop of about 3% to 6% for the year. But don’t let that stat alone dampen your spirits; the company is also projecting a bump in its adjusted operating margin by 20 to 50 basis points. This is where the story starts to get really juicy.

Remember the splash Mattel made with their hit Barbie movie? Well, Hasbro seems to be on a similar path in the world of entertainment. Sure, their bread-and-butter toy business is facing some challenges, but it’s clear that the company’s overarching game plan is anything but stagnant—it’s innovative and agile.

To put it plainly, Hasbro isn’t just idling in neutral; it’s actively changing lanes to better handle the twists and turns of a volatile market. The recent climb in its share price didn’t happen by accident—it’s the result of some smart, deliberate moves and a keen understanding of market dynamics.

For investors on the lookout for savvy plays, keeping Hasbro on your radar is a no-brainer. 

Crunching the Numbers

Analysts are forecasting EPS growth from $4.04 for fiscal year 2023 to $5.50 within two years. That’s impressive growth if management can knock the ball out of the park as Wall Street expects, but it gets even better for investors who like to get paid in the interim. That’s because Hasbro currently pays out a 3.85% dividend, which is not too shabby.

Admittedly, the company has a whopping amount of debt relative to its cash pile. Long-term sits at $3.7 billion while cash levels lie just under $500 million. Investors are rightly concerned about the sustainability of the dividend as a result.

Is Hasbro a Good Stock To Buy Now?

A valuation analysis suggests Hasbro has decent upside to $81 per share, the consensus forecast among ten analysts. Our own discounted cash flow forecast has precisely the same target – usually our numbers lean a little more conservative than the Street, but in this case we’re fully aligned.

Certainly, the strategic pivots should result in tailwinds for the foreseeable future. However, income-oriented investors should perhaps look elsewhere if they want to lock in a dividend that is stable and secure because this one might be in some jeopardy if the financials deteriorate.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.