On Thursday, Hasbro Inc . (NASDAQ:HAS) shares received a significant vote of confidence from CFRA as the firm upgraded its stock rating from Hold to Strong Buy and raised its price target from $74.00 to $90.00. The adjustment comes on the back of a positive outlook for the company's future earnings and operational efficiency.
The upgrade reflects CFRA's belief that Hasbro's Consumer Products revenues are at a low point and will recover. The firm also noted that the company is successfully moving past its eOne integration and anticipates operating margins to rise above 20% in the next two years. In light of these expectations, CFRA increased its earnings per share (EPS) estimates for 2024 and 2025 by $0.25 to $4.00 and $4.50, respectively.
The new price target of $90 is based on a 20.0x multiple of CFRA's 2025 EPS estimate for Hasbro, which is higher than the company's five-year average forward price-to-earnings (P/E) multiple of 17.5x but aligns with its pre-pandemic level.
The analyst's optimistic view is supported by recent earnings outcomes, where Hasbro posted a normalized Q3 EPS of $1.73, surpassing the consensus estimates by $0.44, although revenues fell short at $1.28 billion versus the expected $1.50 billion.
By segment, Hasbro's Wizards of the Coast and Digital Gaming revenues saw a 5% year-over-year decline, attributed to comparisons with the release of Baldur's Gate 3 in 2023. The Consumer Product segment also experienced a 10% decrease.
Despite these challenges, Q3 operating margin showed a strong year-over-year improvement, expanding 290 basis points to 25.7%. This was due to a more favorable business mix, reduced operating costs, and increased supply chain productivity.
CFRA's analysis suggests that investors are beginning to recognize Hasbro's potential for continued margin growth and a more streamlined consumer products segment, leading to the firm's optimistic upgrade and price target revision.
In other recent news, Hasbro Inc. reported third-quarter earnings that surpassed Wall Street's profit expectations due to aggressive cost-cutting measures. This strategy, including trimming costs throughout the supply chain and a focus shift to the more profitable digital gaming division, was a response to a sharper-than-expected decline in sales.
Hasbro's adjusted margin increased to 25.7%, a significant rise from the same period last year, with a reported 39% decrease in inventory levels.
Zak Stambor from eMarketer noted that Hasbro, like competitor Mattel Inc (NASDAQ:MAT)., has strengthened its position through cost-control measures despite industry challenges. Hasbro's CEO, Chris Cocks, expressed optimism, particularly about the company's focus on digital ventures, licensing, and product innovation.
However, Hasbro adjusted its full-year revenue forecast for the Wizards of the Coast and Digital Gaming segment, expecting it to be flat or decrease by up to 1%. The company's Consumer Products segment is anticipated to drop between 12% and 14%.
The recent developments saw Hasbro's quarterly revenue at $1.28 billion, slightly below the expected 13.8% drop to $1.30 billion, but the adjusted earnings per share of $1.73 surpassed the estimated $1.28.
InvestingPro Insights
To complement CFRA's optimistic outlook on Hasbro Inc. (NASDAQ:HAS), recent data from InvestingPro provides additional context for investors. Despite the challenges noted in the article, InvestingPro Tips highlight that Hasbro has maintained dividend payments for 44 consecutive years, demonstrating a commitment to shareholder returns even in challenging times. This aligns with the company's current dividend yield of 3.98%, which may be attractive to income-focused investors.
The article mentions Hasbro's improved operating margin, and InvestingPro data supports this trend, showing an operating income margin of 13.28% for the last twelve months. Additionally, the company's price-to-book ratio of 8.18 suggests that the market values Hasbro's assets significantly, which could be interpreted as confidence in the company's brand strength and intellectual property.
While CFRA has raised its EPS estimates, it's worth noting that InvestingPro Tips indicate that 4 analysts have revised their earnings downwards for the upcoming period. This contrasting view highlights the importance of considering multiple perspectives when evaluating Hasbro's future performance.
For investors seeking a more comprehensive analysis, InvestingPro offers 6 additional tips for Hasbro, providing a deeper understanding of the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.