Can This 100-Year-Old Company Change With the Times?

Consumers are flush with cash.

At least, that’s what economists say.

Although the housing market has cooled, retail consumers continue to spend rapidly.

With Black Friday and the Christmas season around the corner, our proprietary Trackstar investor-interest database shows an explosive jump in financial pros’ searches for toys and games. 

One name, Hasbro (HAS), stood out to us. It’s seeing more search volume than widely mentioned companies like Nestlé, Kellogg’s, and MGM Resorts. 

That’s a bit surprising, considering it missed revenue and EPS expectations in its October Q3 earnings report.

So is the 100-year-old toys and games company on the decline? 

And can it adapt to the future, which includes digital gaming and the metaverse? 

Let’s take a deep dive to answer those questions and more. 

Hasbro’s Business

Hasbro owns a portfolio of brands in the gaming, toys, and entertainment sector. 

Some of its brands include Magic: The Gathering, Dungeons & Dragons, Hasbro Gaming, Nerf, Monopoly, Clue, Transformers, Play-Doh, and Peppa Pig. 

The company breaks its branded portfolio into the following segments: Franchise Brands, Partner Brands, Hasbro Gaming, Emerging Brands, and TV/Film/Entertainment.

Source: Hasbro

As you can see below, most of Hasbro’s revenues come from selling consumer products like toys and games. 

Source: Hasbro

However, it recently announced its Blueprint 2.0 strategy, which focuses on digital gaming, direct-to-consumer, franchise brands, and licensing. 

Financials

Source: Stock Analysis

In October, HAS announced a plan to grow profits by more than 50% over the next three years. 

Management implemented an operational excellence program designed to deliver $250-$300 million in run-rate cost savings over the next three years, expecting $150 million in run-rate savings by the end of 2023. 

If Hasbro can execute, this will improve the company’s overall efficiency. 

In addition, HAS will appear more attractive to investors because it’ll drop more money to the bottom line. 

Also, the company is investing over $100 million over the next few years into its brand insights platform, an analytics tool that Hasbro believes will be a major competitive differentiator and empower it to create more toys, games, and experiences consumers want.   

HAS continues to invest and grow its over $2 billion gaming business. 

The company’s revenues and operating profit declined in Q3 due to a different revenue mix than last year. 

But the firm’s revenues grew from $5 billion in 2016 to $6.4 billion in 2021. 

Over the last 12 months, revenues have exceeded $6.1 billion. 

HAS has $545 million in cash and $4.1 billion in debt. It’s stable financially, with a current ratio of 1.38x. 

In addition, the company pays an attractive dividend of $2.80 per share each year, a yield of 4.7%. 

Valuation

Source: Seeking Alpha

HAS has a P/E GAAP ratio of 19.9x, notably higher than other toy manufacturers Mattel (MAT) at 10.1x and Funko (FNKO) at 8.8x. But it’s cheaper than video game makers Electronic Arts (EA) at 40.6x and Take-Two Interactive (TTWO), which isn’t profitable. 

HAS trades at a price-to-sales ratio of 1.3x, significantly lower than gaming companies EA at 5x and TTWO at 3x, but higher than FNKO at 0.29x and MAT at 1.03x. 

Hasbro increased its long-term assets from $2.1 billion in 2019 to $6.3 billion in 2021. 

The company is significantly investing in direct-to-consumer and direct-to-digital. It believes it will become a $1 billion digital and e-commerce direct business with over 50 million accounts by 2027, up from 20 million today. 

Profitability

Source: Seeking Alpha

Despite all the changes Hasbro is making, it remains profitable. It has a net income margin of 6.7%, materially better than FNKO at 3.4% and TTWO at -2.44%. But it’s not as strong as MAT at 10.3% and EA at 12.3%.

HAS runs an EBIT margin of 12.3%, significantly better than FNKO at 5.3% and TTWO at 5.2%, but lagging MAT at 14.8% and EA at 19.3%. 

Growth

Source: Seeking Alpha

Hasbro saw tepid revenue growth of 1% YoY. While that isn’t bad considering the current economic climate, its peers have done far better. MAT grew revenues by 10.1%, EA by 13.9%, TTWO by 28.3%, and FNKO by 44.2%. 

To boost revenues in the future, HAS plans a major expansion in licensing. Recent partners include Basic Fun! on Littlest Pet Shop and Lego on Transformers. 

In addition, Hasbro is working on entertainment like a new animated kids’ show, Transformers: EarthSpark, and a new film coming out next year, Transformers: Rise of the Beasts. 

Our Opinion 7/10

Hasbro shares are down more than 41% YTD. 

Over the last month, the company addressed investor concerns and announced several initiatives to improve revenues and profitability. 

Hasbro dealt with several economic downturns throughout its 100-year history, which should give investors confidence that it can weather the current storm. 

The company pays an attractive dividend and is positioning itself to succeed for the next 100 years. 

We believe at these levels, HAS is a buy that can bounce back from this year’s poor stock performance.

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