Hasbro's company 'tone' has changed: Analyst on downgrade
Hasbro (HAS) received a downgrade from D.A. Davidson to a "Neutral" rating from "Buy," with the price target lowered to $53 per share from $60. The company recently faced massive layoffs due to, what CEO Chris Cocks said to his staff in a memo as, stronger-than-expected “market headwinds."
D.A. Davidson Senior Analyst Linda Bolton Weiser joins Yahoo Finance to explain the reasoning behind Hasbro's downgrade and the toymaker's business outlook.
"The tone of the company has really changed and I would say that happened around the time that I spoke to them when they announced their headcount reductions around December 10 or so," Weiser explains, "and they really made it sound like the growth prospects for the toy business in 2024 were no growth."
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Editor's note: This article was written by Nicholas Jacobino.
Video Transcript
[AUDIO LOGO]
- DA Davidson downgrading Hasbro to-- from buy to neutral this week. The move coming after the toy maker cut nearly 20% of its workforce in an industry struggling to reinvent itself post-pandemic. Joining us now is the analyst behind that call, Linda Bolton Weiser, DA Davidson senior analyst.
Linda, it is good to see you. So you downgrade Hasbro. You go to neutral, your target. And it goes to 53. How come? Just walk us through the argument, Linda, why you decided now was the time to move to the sidelines.
LINDA BOLTON WEISER: Sure. Well, there's really three key reasons. I would say the tone of the company has really changed. And I would say that happened around the time that I spoke to them when they announced their headcount reductions around December 10 or so. And they really made it sound like the growth prospects for the toy business in 2024 were no growth, you know, decline.
And I think that was, to me, a different change in tone. And part of that was the idea that there was a COVID pantry load by consumers of toys and that you're kind of unwinding that. That's a little bit of a new narrative.
And then secondly, I'm concerned that the Street estimates for the first half of 2024 are too high. The growth is just too high, both top-line growth and the profit growth. The operating profit the Street has is over 25% growth for 2024. I think they're going to guide lower than that.
And thirdly, I'm concerned that their cash flow in the next few years, their free cash flow will not be high enough to make a big enough dent in paying down their debt to get their leverage ratio down as fast as they would like. I think that signals potential risks to the dividend. I think there's a risk to a dividend cut here.
- Linda, on the flip side, the company is trying to introduce some new products, some new properties, right? It's trying to follow on the heels of Mattel, come out with some new content linked to some of its existing properties. It also has this new AI-powered Trivial Pursuit that one of our producers was playing with today and had a good time with. Is any of that going to help? Could that even help enough that the stock could recover to some extent?
LINDA BOLTON WEISER: No, I don't think anything that you've mentioned there is really big enough, huge enough to move the needle. And remember, they've taken a step back from being more closely tied to entertainment and content development because they've divested entertainment E1. So they still have Hasbro Studios. But recall, their "Dungeons and Dragons" movie in 2023 was not that successful, nowhere near the success of "Barbie."
So right-- the most recent thing didn't really prove that they are so superior at developing that content. So I would say that no. If anything, they have a really hard comparison in their Wizards and Digital Gaming business because of "Baldur's Gate 3" launch, which was in 2023. And that was a very significant contributor. So it's a hard comparison for them for next year.
