Shares in top toymaker Hasbro (NASDAQ:HAT) have had a difficult year and have lost around 37% of their value since the beginning of the year. The fast-falling discretionary stock could hit lows not seen since the depths of the 2020 stock market crash. With expectations for the holiday season and all of next year subdued, I view Hasbro as an intriguing long-term value option as the company seeks to pull multiple levers to turn things around.
Hasbro Stock: Expectations for 2023 may be too muted
Looking ahead to 2023, expectations for the toymaker are pretty pessimistic. The company is grappling with recession headwinds as it seeks to sell the indie film and television studio it overpaid just a few years ago.
The Company’s Entertainment One (eOne) is for sale. The company intends to refocus on its core toys and games business. There is no doubt that a sale of the TV and film business will bring in a significant sum. However, it is doubtful that Hasbro will get back what it paid ($4 billion) in 2019.
In any case, Hasbro seems to have learned an important lesson that wandering outside of its circle of competence comes with significant risks. The television and film business has slumped significantly after the pandemic-era boom. Faced with significant investment requirements with uncertain returns, TV and film is no longer the hot segment to diversify into.
If the company goes back to its roots, I’d be looking for the struggling toymaker to claw a bit of market share from rivals like Canada’s Spin Master (TSE: TOY) – a rising star in the toy industry.
Though Spin Master has made great strides over the years through strategic acquisitions and investments in digital products, Hasbro still has the means to widen the gap on its competitors thanks to its robust lineup of brands. Power Rangers and Transformers are two incredible brands that could be a source of significant growth in the future.
Once Hasbro finds a buyer for its eOne assets, it will have the financial flexibility to invest in its core brands. The company expressed a desire to invest more in the popular Transformers brand. Such investments are likely to pay off better and more securely than bets on TV and the media.
In fact, Hasbro could see quite a transformation in the next year or so. With a third-quarter flop and bleak pre-holiday expectations already factored in, I think it’ll be tough to overtake the $8.6 billion toy giant at these depths. I’m bullish on HAS stocks.
Hasbros Quarterly fumble seems overkill
Hasbro missed the mark for the third quarter with earnings per share of $1.42, just below estimates of $1.52. Net sales of $1.68 billion (down 15% year over year) also missed estimates by $50 million. To add even more salt to the wound, gross margins fell to 65% from 69.1% in the year-ago quarter.
The main reason for this is the headwind in the industry. Still, the company didn’t seem to be doing itself any favors. Luckily, the newly appointed CEO, Christian Cocks, was able to help the company turn around and march higher again.
Right now, Hasbro stock looks like a sinking ship as discretionary demand is likely to continue to fall 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 recovery when it arrives.
Innovation is a critical area that can help Hasbro strengthen former competitors even as the toy industry lights go out for and after the holiday season.
After the latest blip, HAS stock is trading at 20.5 times trailing earnings, 1.3 times sales and 21.8 times cash flow. The dividend is generous, yielding 4.6%, while the low beta of 0.77 suggests that HAS stock could head into the new year with less jitters than the broader market. The name has already been punished so severely.
Is Hasbro Stock a Buy According to Analysts?
Turning to Wall Street, HAS stock is a moderate buy. Out of nine analyst ratings, there are five buy, three hold and one sell recommendation.
Hasbro’s average price target is $88.63, which represents a 42.6% upside potential. 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 company as it appears to be turning around in a recession year. This week, Bank of America (NYSE:BAC) Securities downgraded Hasbro stock to Sell, citing overproduction of Magic: The Gathering cards.
Such downgrades could put further pressure on the stock in the coming weeks. Regardless, most Wall Street analysts remain bullish on the name while it’s in the kennel.