On Tuesday, Jefferies analysts adjusted the price target for Hasbro (NASDAQ:HAS) shares, reducing it to $67.00 from the previous $83.00, while continuing to recommend a Buy rating for the stock.
They provided insights on the potential for operating margin expansion within Hasbro's Consumer Products (CP) segment by 2025. He highlighted that while Wizards of the Coast (WotC) is anticipated to drive sales growth for Hasbro in 2025, there are expectations of a contraction due to decreased contributions from Digital Gaming and increased royalty expenses.
The analysts noted that the contraction in WotC's operating margin is likely to bottom out in the second quarter, coinciding with the company facing lower royalty rates and the absence of a one-time $20 million benefit from an international publishing contract. Conversely, the CP segment is expected to see the most significant margin expansion in the third quarter, which may pose a challenge for the second quarter's performance.
The analysis by Jefferies suggests that volume leverage and cost savings initiatives will be the primary factors driving the CP margin expansion. The cost savings are projected to have a similar impact in 2025 as they did in 2024, making sales volume the critical variable for the coming year. In light of these risks, Jefferies believes that a valuation multiple of approximately 8 times is justified for Hasbro and other toy companies within their coverage.
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