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Don’t Buy Hasbro Stock on the Promise of a Breakout and 20% Upside

Bret Kenwell

While Hasbro (NYSE:HAS) has been trying to grind out gains so far this year, it’s been tough sledding over the past 12 months. Hasbro stock is up 3.5% so far in 2018, but down about 17% over the last 12 months. With that said, Hasbro stock may be breaking out, paving the way to more upside.

So is now the time for investors to buy?

It helps that Hasbro pays out a 2.7% dividend yield and is tied to one of the most polarizing companies in the world, that being Walt Disney (NYSE:DIS).

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At least, most polarizing to kids, anyway. Hasbro and Disney are in a win-win situation. Disney can focus on what it does best—making content and creating experiences—while Hasbro can do what it does best, which is making toys.

Given how many Avenger films Disney releases, it’s unclear whether there will be an uptick Hasbro’s sales when it comes to toys, action figures and costumes. However, the much more popular than anticipated Black Panther should help drive sales. Analysts didn’t have too high of expectations for the film, which went on to be one of the most successful hits ever.

That could drive sales for Hasbro accessories in the back half of 2018. Incredibles 2, which was released in mid-June, could also help drive sales. Perhaps Christopher Robin will too. But 2019 should be better, with its huge slate of movies. That should surely drive positive results for HAS.

That may seem like grasping at straws, but a licensing deal with one of kids’ most fascinating entertainment sources is far from a bad setup.

Valuing Hasbro Stock

While the situation with Disney is good, Hasbro isn’t exactly perfect. For starters, sales are forecast to fall about 6% this year, while earnings estimates call for a 13% decline in 2018. The company last reported earnings in late-April, missing on earnings and revenue estimates. Sales fell almost 16% and earnings of 10 cents per share badly missed expectations for 34 cents per share.

In hindsight, last quarter probably would have been a good time to pre-announce.

Unfortunately, that was only the first fiscal quarter of 2018. Based on how badly Hasbro missed those estimates though, it’s not clear if the decline in full-year expectations has been enough. Three months ago, analysts were expecting full-year earnings of $5.19 per share. That estimates has since fallen 8.5% to $4.75 per share.

With all that in mind, it’s hard to put too much credence in Hasbro’s 2019 estimates, which call for a 6.8% rebound in sales and 12% rebound on earnings. Trading at more than 19 times this year’s earnings isn’t exactly a bargain either.

For one, Disney has better growth and a far lower valuation. The same can be said for Apple (NASDAQ:AAPL), Delta Air Lines (NYSE:DAL), JPMorgan Chase (NYSE:JPM) a number of other names.

Trading Hasbro Stock

chart of HAS stock


Click to Enlarge

That said, analysts aren’t exactly bearish. Over the last three months, the average price target for Hasbro has come in at $100. That’s about 7% upside from current levels.

There are several targets between $105 and $110, but the highest comes from DA Davidson. Those analysts are looking for Hasbro to run to $113, representing almost 21% upside from current prices. Depending on this breakout, that mark may be doable.

So what is this, “depending on this breakout” talk anyway? Sometimes stocks do not give us a definitive move, even at times when it seems so obvious. In this case, we have two lines drawn on the chart above, one is a solid black line, the other a dashed black line.

If we go off the highs in Hasbro stock, shares broke out over downtrend resistance in early July. But they have now fallen back below the mark, a potentially bearish move.

However, if we go by the closing prices rather than the highs where Hasbro stock has tested but failed downtrend resistance in the past, shares are still above this mark. If true, that’s bullish.

If the fundamentals were better here, I would feel more comfortable rolling the dice on Hasbro stock. Even though the analysts seem pretty optimistic, I would personally feel better about putting my money elsewhere.

That’s especially true with the fundamental and technical pictures in question.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell held a long position in AAPL.

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