Hasbro Vs. Take-Two: Which Stock Is Poised For Better Q4 Earnings?

The Toys-Games–Hobbies Industry under consumer discretionary is expected to have recorded growth in Q4 on rising demand for entertainment services, including video games. The industry performed remarkably well in the past year gaining 49.8%, outpacing the S&P 500's 21.1%.

Traditional Toy Makers In A Fix

Toy companies have been grappling with declining demand for traditional toys for quite some time now. Pressure from the recent Toys ‘R' Us bankruptcy have affected their third-quarter results and might have dented growth in Q4 as well. 

As a result, we have seen Mattel MAT report fourth-quarter 2017 adjusted loss of 72 cents per share, comparing unfavorably with the Zacks Consensus Estimate and the prior quarter's earnings. Net sales also missed the consensus mark and declined year over year.

Meanwhile, another leading U.S. toymaker Hasbro HAS is expected to deliver strong revenues and earnings owing to the company's efforts to counter the prevailing challenges in the operating environment. The company is expected to report its quarterly results on Feb 7.

The consensus estimate for Q4 earnings is pegged at $1.82, mirroring nearly 11% year-over-year growth. We believe that this growth is attributable to the company's efficient cost structure coupled with various sales-boosting efforts in some key markets.

Meanwhile, analysts polled by Zacks expect revenues of $1.73 billion, reflecting 6.4% year-over-year growth. The projected sales growth is primarily backed by strong performance of the company's Franchise Brands, Partner Brand, Hasbro Gaming and Emerging Brand. Also, entertainment initiatives and higher consumer product sales are likely to drive revenues.

However, the Toys ‘R' Us bankruptcy will keep Hasbro's top line under pressure. The bankruptcy disrupted the company's growth plans in Q4 and had even paused shipments for a short period. Taking the adverse impacts into account, the company has slashed its Q4 revenue growth guidance to a range of 4% to 7%. (Read More: Will Hasbro Record Revenue & Earnings Growth in Q4?).

Hasbro has a Zacks Rank #3 (Hold) and an Earnings ESP of -0.29%, a combination that doesn't suggest a beat.

Hasbro, Inc. Price and EPS Surprise

Hasbro, Inc. Price and EPS Surprise | Hasbro, Inc. Quote

Video Game Developers Enjoy an Edge

Within the industry, th video game marketers and developers are well poised for growth. Strength in digital business and mobile games are key growth drivers for these companies.

A big name in the space, Electronic Arts EA recently reported an earnings beat in third-quarter fiscal 2018. Meanwhile, Take-Two Interactive Software, Inc. TTWO — a leading developer and publisher of video games and peripherals — is scheduled to report third-quarter fiscal 2018 results on Feb 7.

The company's expectation of growth in digital revenues driven by higher sales of full-game downloads and increase in recurrent consumer spending is encouraging. Subsequently, the consensus estimate for third-quarter revenues is pegged at $673.28 million, reflecting a year-over-year increase of 41.3%.

The consensus estimate for EPS stands at $1, showing a year-over-year increase of 16.3%. We believe increased sales from the digital version of games are driving margins. Moreover, strength in franchises has backed the company's earnings growth projection.

Take-Two Interactive has a Zacks Rank #3 and an Earnings ESP of +1.93, a combination that suggests a beat.

Take-Two Interactive Software, Inc. Price and EPS Surprise

Take-Two Interactive Software, Inc. Price and EPS Surprise | Take-Two Interactive Software, Inc. Quote

To Conclude

The rising demand for video games and digital entertainment facilities are putting traditional toymakers in a disadvantageous position. Thus, Take-Two Interactive is poised for stronger Q4 earnings and revenue growth when compared with Hasbro.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report