Key points
- The market reacts to Hasbro’s recent earnings announcement by relaunching the stock.
- Fundamentals show that management is making the right decisions to turn the business around.
- EPS projections indicate that Hasbro could be a cut above its closest competitor.
- 5 stocks we prefer to Hasbro
After announcing the financial results of the first quarter of 2024, probably the most critical quarter of the year as it sets the tone for any stock, shares of Hasbro Inc. NASDAQ: HA it jumped up to 12%.
With Mattel Inc. NASDAQ: MAT also strengthening on earnings and flirting with new 52-week high prices, the momentum appears to favor the toy industry, and this time it could last well beyond the holiday season. As the economy becomes increasingly globalized, protecting intangible assets through rights and patents is more important than ever, something Hasbro management has made a priority.
Wall Street remains bullish on Hasbro as consumer discretionary stocks show signs of a turnaround.
Hasbro is near the top of the line
(At 11:16 a.m. ET)
- 52 week interval
- $42.66
▼
$73.57
- Dividend yield
- 4.32%
- Price target
- $62.80
As of the fourth quarter of 2023, Hasbro owned 43.6% of the recreational market share, while competitor Mattel owned 47.4%. Aside from these two, no other company poses a real intrusion threat. Dominance in terms of market share typically manifests itself through gross margins, and Hasbro’s were around 48%, matching Mattel’s.
The main difference between these two market leaders lies in their balance sheets. Mattel’s balance sheet shows total debt equal to 56% of its assets, while Hasbro’s debt is much higher, at 77%, over the past 12 months.
As the Federal Reserve (Fed) is looking to cut interest rates this year, companies with larger amounts of debt on their balance sheets could see an increase in earnings per share (EPS). Since more debt typically means more interest expenses, lower rates could significantly reduce these costs and boost earnings. According to CME’s FedWatch tool, these cuts could come as early as September 2024, giving investors enough time to consider taking a second look at Hasbro.
Management is making the right choices
According to the company’s earnings presentation, inventory levels have been reduced by 53% over the year, as business segments show that the digital space is now taking over profitability. Consumer products revenue fell 21% over the year, showing an operating loss of $47 million. On the other hand, the Wizards of the Coast and Digital Gaming segments reported revenue growth of 7% and net operating profit of $123 million. Inventory reductions mean more available cash and fewer cost burdens as management focuses on profitable segments like digital.
Management expects to cut $750 million in gross cost savings by 2025. Up to 50% of these savings would benefit the bottom line. In other words, there would be $375 million in net earnings to boost EPS. While these goals may seem a little bold, management is sending a resounding message.
- Dividend yield
- 4.32%
- Annual dividend
- $2.80
- Annualized three-year dividend growth
- 0.97%
- Dividend payout ratio
- -26.12%
- Next dividend payment
- May. 15
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It would not be possible to deliver a 4.3% annual dividend yield if management did not believe the company’s financials permitted it. This yield would allow investors to beat stubbornly high U.S. inflation rates and nearly match today’s 10-year Treasury yield of 4.6%.
The takeover of Wall Street
As Wall Street analysts expect to see EPS growth of 18.4% this year, it would appear that markets think a stronger 2024 is in sight for the company. By comparison, Mattel has a projection of 10.2%.
The forward P/E ratio also shows investors how Hasbro commands a premium to Mattel’s future earnings valuation; Hasbro’s 17.2x forward P/E commands a 36.5% premium to Mattel’s 12.6x.
The institutional quality of Hasbro stock remains high, as institutional ownership currently stands at 91.8%. In fact, over the past 12 months, the stock has seen institutional inflows of $1.9 billion (which represented nearly 20% of the company’s market capitalization).
With the stock trading at 88% of its 52-week high, investors can see how the bullish momentum confirms these fundamental trends, aiding the company’s future valuation. As long as management continues to make the right decisions, Hasbro could be the best choice for investors this year.
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