This article was first published on smarteranalyst.com, written by Bill Gunderson
Hasbro, Inc. (HAS): An Underappreciated Growth Story
Hasbro, Inc. (NASDAQ:HAS) has been around since 1923 and is a company name that most parents and kids recognize. Hasbro makes toys and while their main competitor Mattel (MAT) and its Barbie franchise in known for its “girl product” focus, Hasbro is known for its more male-orientated toys such as the Transformer action figure line and all things Nerf. But it also markets under many more beloved brands such as: Littlest Pet Shop, Magic: The Gathering, Monopoly, My Little Pony, and Play-Doh.
Back in April, I wrote an article about how Hasbro is not merely a toy story, but a brand story. Hasbro is successfully leveraging its extensive brand portfolio globally and converting it into high-margin growth opportunities in its Entertainment and Licensing segment.
On July 20th, Hasbro reported yet another blow-out quarter, with earnings coming in at $0.33 versus estimates of $0.29. Sales were hurt by the strong dollar and fell 3.8%. Had it not been for currency effect, revenues would have been up 5%. Second quarter is not usually a big quarter for toy manufacturers, but Hasbro’s inventory is well positioned for the holiday season. Shares rose more than 6% on the earnings results.
Hasbro has negotiated studio licensing agreements for blockbuster movie franchises such as Jurassic Park, Star Wars, and X-Men. Mattel on the other hand has struggled to boost sales for its iconic Barbie franchise. The result, over the last year Mattel has lost more than 30% this year while Hasbro has surged up more than 50%.
The recent success of “Jurassic World” and the relaunch by Disney of the Star Wars franchise later this year has Hasbro on pace for a record year. And competing with Mattel where it hurts, in the girl category, Hasbro also inked a deal for the Disney Princess franchise. The release of the Disney movie Frozenofficially knocked Barbie off her pedestal.
In this era of electronic toys and devices that Hasbro describes as “children getting older younger”, branding and strategic licensing agreements have become critical to success. And Hasbro seems to have the brand mix that children, boys AND girls demand.
So let’s take a closer look at Hasbro stock using the Best Stocks Now app.
Hasbro is a Mid Cap stock in the Leisure sector with a market capitalization of $9.9 billion. Its risk profile is Moderate. The company generates annual revenues of $4.3 billion.
For a toy stock, Hasbro does not look cheap with its Trailing PE of 24 and a forward PE of 20. Its Value Grade is C. But as mentioned, Hasbro is transforming itself into more of a media stock, linking its future success to licensing agreements instead of the traditional toy business.
Investors used to view Hasbro as an old toy maker in an age of new higher-tech toys. It is the plot of Toy Story all over again: Woody versus Buzz. But that perception has changed as the power of the licensing and brand franchise is fully being recognized. The stock it is up almost 50% YTD and receives a Momentum Grade of B+ and a Performance Grade of A-. Hasbro’s execution is particularly impressive given the struggles of its key competitors in the category.
Out of the 4130+ stocks in the Gunderson Best Stocks Now universe, Hasbro stock ranks #83. Its stock grade is an A- which gives it a Buy rating. I am long the stock.
Hasbro is an underappreciated growth story. Its core business may be toys, but its growth business is the power of its brand franchise. That is the toy story that competitors like Mattel are not understanding. Sorry Barbie, you are missing the party.