UBS Upgrades Hasbro As Stock Price Bakes In Tariffs, Slow Holiday

Hasbro, Inc. HAS has slipped 25% on weak third-quarter figures, but the toymaker could gain firmer footing as Walt Disney Co's DIS “Frozen” franchise heats things up.

The Rating

UBS analysts led by Arpine Kocharyan upgraded Hasbro to Buy and maintained a $117 price target.

The Thesis

UBS buyer checks suggest that dolls, action figures, Nerf products and games will drive an increase in points of sale in the fourth quarter. That’s not necessarily enough to keep Hasbro fans content.

“Q4 EPS could be noisy, however, given equity issuance and debt raise with no corresponding revenue from eOne,” the analysts wrote in a report. “We do not believe Hasbro can recapture much of Q3 shipment miss in Q4. Additionally, toy stocks typically don't trade well into [the] holiday season, which this year is also 6 days shorter year-over-year.”

The market seems to anticipate these factors, though.

“The stock appears to be pricing in a lackluster holiday season, combined with further tariff disruption and no upside to $130M of initial synergy guide,” Kocharyan wrote.

They expect eOne to bring better-than-expected revenue and cost synergies, with 13% bottom-line accretion in 2021 and 18% in 2022. The recent gaming addition is expected to bring about $45 million in cost synergies and $100 million in in-sourcing synergies. The estimates account for:

• $80 million in incremental profit related to internalizing eOne's toy business;
• $20 million to $23 million in earnings before interest and tax related to licensing; and
• $35 million to $40 million in incremental operating profit related to expansion of Family & Brands toy sales.

Price Action

At time of publication, Hasbro's stock traded up 2.3% to $98.30 per share.

Related Links:

McDonald's Celebrates The Happy Meal's 40th Birthday With Nostalgic Toys

Hasbro CEO Defends Company After Post-Earnings Sell-Off