Hasbro Moves Lower After Market-Beating Report
Shares of Hasbro (NASDAQ:HAS) began to move higher on Friday after its competitor Mattel (NASDAQ:MAT) surprised the market. According to Mattel, there is strong COVID-inspired demand for toys and at-home entertainmentthat should carry through the holiday season. As a parent of two what I have to say to that is “duh”. Shares of Mattel surged on the news, Hasbro not so much, leaving Hasbro at a deep-discount that may soon shrink. If you are looking for a great holiday play that pays a safe dividend Hasbro could be the stock for you.
"When kids stay at home, parents want to keep them entertained and engaged," notes Mattel CEO Ynon Kreiz. "We are working hard to meet this strong demand,"
Hasbro Beats Consensus, Margins Rise
Hasbro reported 3Q results that beat consensus by a fair margin. Not too surprising given the fact the analysts have been very shy in their estimates this year but no less relevant to the market. Revenue of $1.78 billion grew 12.7% from the last year and beat consensus by 2.3%. The results are underpinned by a 9% increase in North American sales, a 7% increase in EU sales, a 21% increase in gaming revenue, and a 50% increase in eCommerce. The eOne segment, the company’s film and TV arm, saw revenue decline but that was expected due to production delays and shutdowns.
“Building off this quarter's growth in toys, games and digital we are positioned to deliver a good holiday season. Live-action entertainment production is returning, and we are set to improve deliveries in the fourth quarter with some moving into 2021. While COVID-19 remains a factor in our global operations, consumers remain engaged in activities that create joy and personal connections and we are working purposefully to deliver them the world's best play and entertainment experiences,” said CEO Brian Goldner.
Moving down the report, results only get better. The company’s adjusted operating margin improved contrary to the expectation to top 20.7%. This is up 230 basis points from the previous year and beat consensus by 200 bps. GAAP earnings of $1.61 are only as expected but that doesn’t matter, the comparable adjusted earnings came in at $1.88 to top the consensus target by $0.27.
Hasbro’s Cash Position Grows
Hasbro has a strong balance sheet and was able to improve it over the past quarter. Total cash increased by nearly 20% to $1.13 billion or about 25% of the company’s total debt. Debt is primarily long-term in nature and well-managed although coverage could be better. With a leverage ratio near 7.75%, we can expect the company to continue hoarding capital and/or begin paying down or restructuring some of its debt. Regardless, the nearly 3.0% yield shows no signs of getting cut and comes with an expectation of future increases. Hasbro has increased the payout every year for 17 years until the pandemic hit. Based on the outlook for next year’s earnings I’d say the company could easily reinstate the dividend in fiscal 2021. Mattel does not pay a dividend.
The Technical Outlook: Hasbro Is A Lagging Value Ready To Move Higher
Not only is Hasbro lagging Mattel in terms of price-performance, but it is also trading at a deep discount as well. Hasbro is trading at a mere 27X this year’s earnings and 21X next year’s consensus while Mattel is trading closer to 88X and 31X earnings. That’s a lot of room for multiple expansion and with earnings improving as they are a multiple expansion is in order. Looking at the chart, all signals I see are bullish which leads me to believe today’s early morning pullback is a buying opportunity. If support doesn’t hold at the $90 level we may see them pull back to $85.
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