Hasbro, Inc. HAS is likely to benefit from strong gaming demand, increased focus on eOne content and expansion initiatives. However, supply chain disruptions and inflationary pressures are a concern.
Let’s discuss the factors that suggest why investors should retain the stock for the time being.
Major Growth Drivers
Hasbro is witnessing a strong gaming demand during the coronavirus crisis. Hasbro has a supreme gaming portfolio and is refining gaming experiences across many platforms like face-to-face gaming, tabletop gaming and digital gaming experiences on mobile. The company's gaming category, which includes Magic: The Gathering, NERF, Peppa Pig, My Little Pony, Transformers and Hasbro products for the Marvel portfolio are performing well. Wizards generated solid performance on the back of Magic: The Gathering and Dungeons & Dragons. The heightened engagement was witnessed in desktop and mobile versions, attracting new arena players. The company emphasized on integrating D&D Beyond into Wizards’ business to drive growth. It anticipates the digital content platform substantially accelerating its direct-to-fans capability for DUNGEONS & DRAGONS in physical and digital play. The company expects the acquisition to be accretive to EPS in 2023 and beyond.
Hasbro continues to focus on adapting plans to deliver a robust lineup of entertainment and innovation from E1 and its partners. Notably, on the content side, E1 production is gradually recovering through a new animated series on Netflix and Alien TV. The team has been witnessing solid feedback for the contents in Peppa Pig, PJ Mask and the My Little Pony feature film.
The eOne team continues to develop and move into the production of Hasbro IPs of more than 200 projects in development across TV, film, and animation. The company said that the eOne team is working on more than 35 development projects for Hasbro brands, including content for TRANSFORMERS, MAGIC, D&D, PEPPA PIG, MY LITTLE PONY, POWER RANGERS and PLAY-DOH, among many others. It emphasized on feature films such as Transformers: Rise of the Beasts and Dungeons & Dragons to be a driving factor for boosting revenues and operating profits in 2023.
In addition to growing brands and leveraging opportunistic toy lines and licenses, the company seeks to grow its international business by expanding into emerging markets in Eastern Europe, Asia and Latin and South America. Emerging markets offer greater opportunities for revenue growth than developed markets and have been contributing significantly to Hasbro's revenues, given its investments in advertising and other brand-building efforts. During second-quarter fiscal 2022, markets in North America and Latin America witnessed solid growth. Over the next few years, Hasbro anticipates the emerging markets to grow in double digits, backed by innovation in products, entertainment and market share gains.
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Shares of the company have declined 30.3% so far this year against the industry’s fall of 8.3%. Supply chain disruptions and inflationary pressures had taken a toll on the company. Although the company’s operations continue to recover from the negative impact of the coronavirus crisis, the implications of future disruptions cannot be ruled out. The company expects difficulties in shipping and distributing products due to constraints in port capacity, shipping containers and truck transportation. It expects the headwinds to persist throughout 2022.
Hasbro has been incurring increased expenses, which have been detrimental to margins. The company has been shouldering high expenses related to freight and input for quite some time. During the fiscal second quarter, Hasbro's cost of sales (as a percentage of net revenues) came in at 30.7% compared with 26.1% in the prior-year quarter. The company anticipates inflationary pressures to persist for the majority of 2022.
Zacks Rank and Stocks to Consider
Currently, Hasbro carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Some better-ranked stocks in the Zacks Consumer Discretionary sector include Marriott Vacations Worldwide Corporation VAC, Hyatt Hotels Corporation H and Choice Hotels International, Inc. CHH.
Marriott Vacations sports a Zacks Rank #1. VAC has a trailing four-quarter earnings surprise of 13.9%, on average. The stock has declined 26.1% in the past year.
The Zacks Consensus Estimate for VAC’s current financial year sales and earnings per share (EPS) indicates an increase of 19.7% and 131.4%, respectively, from the year-ago period’s reported levels.
Hyatt carries a Zacks Rank #2. H has a trailing four-quarter earnings surprise of 798.8%, on average. The stock has declined 1.8% in the past year.
The Zacks Consensus Estimate for H’s current financial year sales and EPS indicates growth of 89.1% and 113%, respectively, from the year-ago period’s reported levels.
Choice Hotels carries a Zacks Rank #2. CHH has a trailing four-quarter earnings surprise of 11.2%, on average. The stock has declined 17.5% in the past year.
The Zacks Consensus Estimate for CHH’s current financial year sales and EPS indicates growth of 25.3% and 21.7%, respectively, from the year-ago period’s reported levels.
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