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Hasbro (HAS) Down 11% YTD: Can the Stock Revive in 2021?

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Hasbro, Inc. HAS has been reeling under sluggish performance on account of continued uncertainties related to the COVID-19 pandemic. In third-quarter 2020, the company’s sales declined 12.8% year over year. On a pro forma basis, net revenues decreased 4% year over year.

The coronavirus pandemic has been affecting every aspect of business from shipments to brick-and-mortar sales to delivery of content in order to meet demand. Further, temporary store closures, product shortages, lower retail inventories, supply chain disruption, live-action production shutdowns and changing theatrical release schedules have been acting as headwinds.

Dismal international sales remain a concern. During the third quarter, International segment’s revenues amounted to $517 million, which declined 8% year over year. The segment’s adjusted operating margin came in at 12.4% compared with 12% in the year-ago quarter. The segment’s results in the quarter were impacted by dismal performance of the Latin American region, offset by growth in European region.

Notably, shares of this company have declined 10.9% year to date against the industry’s rally of 37.9%.

Key Catalysts

Hasbro is witnessing strong gaming demand amid the coronavirus pandemic. The company has a supreme gaming portfolio, and it is refining gaming experience across a multitude of platforms like face-to-face gaming, off-the-board gaming and digital gaming experiences in mobile. Given a strong product lineup and a greater focus on entertainment backed products, Hasbro’s Entertainment and Licensing segment is poised for growth. The company announced that it is currently investing in longer-term larger game play. The company’s gaming category, which includes MAGIC: THE GATHERING tabletop, MONOPOLY, DUNGEONS AND DRAGONS and many other Hasbro games such as THE GAME OF LIFE, JENGA, CONNECT 4 and OPERATION, has been performing well. During the third quarter, the company not only witnessed solid momentum in gaming but also in Disney’s Frozen 2 and Lucasfilms Star Wars.

Hasbro continues to focus on adapting plans to deliver robust line-up of entertainment and innovation from E1 and its partners in 2021. Notably, on the content side, E1 production is gradually recovering through a new animated series on Netflix and Alien TV. The team also continues to develop and produce new content for Peppa Pig, PJ Mask and the My Little Pony 2021 feature film. Apart from this, it has executed a successful virtual con and developed more than 100 film and 60 new TV projects, including Hasbro IP and new IP. Notably, the company spent $220.4 million on content production in the first half of 2020. Going forward, cash spend projections for 2020 are estimated at $450 million to $550 million for content. Although the company intends to finish the projects by 2020, part of its revenues is likely to get realized in 2021.

Moreover, Hasbro continues to release Transformers Franchise in all forms of entertainment including movies, television and digital expressions. Given the company’s several innovative and productive plans for Transformers franchise over the next 10 years, revenues are expected to grow. During third-quarter 2020, the company unveiled new products for the Star Wars Vintage Collection Razor Crest and the HEROQUEST Game System.

Wrapping Up

Although coronavirus-related woes remain a concern, the company is witnessing robust demand for gaming category. The company is also focusing on on eOne Content. The company has an impressive long-term earnings growth rate of 8.9%. The company, which shares space with Mattel, Inc. MAT, JAKKS Pacific, Inc. JAKK and Glu Mobile Inc. GLUU, carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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