Life After Toys R Us: KeyBanc Bullish On Hasbro, 'Warming Up' To Mattel Turnaround

Expect normal growth to return to the global toy industry later this year, KeyBanc Capital Markets said following check-ins with the industry’s two biggest players, both of which are still dealing with fallout from last year's Toys R Us collapse. 

The outlook is more upbeat for Hasbro, Inc. HAS than for Mattel, Inc. MAT, which saw its shares reeling Wednesday following a forecast for essentially flat sales for 2019.

The Analyst

KeyBanc analyst Brett Andress maintains an overweight rating on Hasbro with a $110 price target.

The analyst has a Sector Weight rating on Mattel.

The Thesis

The toy industry went through major disruption last year when Toys R Us went out of business, shutting down a major sales pipeline for the biggest toymakers.

While the toy makers expect continuing headwinds from Toys R Us in the first quarter of 2019, they project a return to normal after the quarter, Andress said in a note released after the industry's Toy Fair event and meetings with Hasbro and Mattel management.

Andress lowered 2019 earnings estimates for Hasbro from $4.90 per share to $4.30 and lowered 2020 EPS expectations from $5.40 to $4.90. The move reflects a longer-than-expected Toys R Us impact on full-year sales growth. 

Hasbro is a "core leisure holding given its preferred top-line visibility and long-term growth initiatives," the analyst said. 

Mattel Turnaround 'Has Legs'

Mattel last week dramatically reduced its expectations for the first quarter and the full 2019 fiscal year, putting out lower sales estimates as it acknowledged recovery from the Toys R Us closure was taking longer than initially thought.

Mattel officials said the company remains in “turnaround mode." 

While Andress lowered earnings estimates for Mattel in light of the new guidance, he also said the turnaround “has legs.”

The analyst lowered the 2019 EBITDA estimate for Mattel from $440 million to $400 million, while also lowering projections for 2020 EBITDA.

Mattel’s reset of its own expectations gives a “more realistic pacing of the turnaround” than before, Andress said, adding that despite a tough road, the company's track record gives KeyBanc optimism for a rebound.

“Admittedly, we are warming up to the turnaround, but await further signs of confidence in top-line stabilization." 

Price Action

Hasbro shares were down 0.89 percent at $86.68 at the time of publication Wednesday, while Mattel was down 3.71 percent at $13.49. 

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Photo by Perth Jaywalker/Wikimedia.