Is Hasbro a Good Buy or Just Another Investor Play-Thing?

Hasbro HAS announced this week that it believes it should be able to “grow revenues and earnings per share for the full-year 2012 versus 2011.” This is good news for the toy manufacturer, which has been having a bit of a rocky 2011. Over the past six months, Hasbro has been watching its stock tumble, falling from $48.33 on May 12 to $31.99 on October 3. While things could always be worse, Hasbro investors couldn't be too happy with the company's performance this year. But will 2012 bring about the change they have been waiting for? Hasbro will once again rely on a licensing staple – Star Wars toys – to boost its bottom line. The company is planning a heavy push for the 3D release of Star Wars Episode I: The Phantom Menace. Darth Maul, the film's most popular character, will lead the charge as the new face of Star Wars, with reports indicating that the action figure packages will feature a picture of the beloved Sith Lord. And that's not all. In the coming year, Hasbro will release toys to support the upcoming Avengers film, as well as the next Spider-Man flick, and another batch of toys based on Star Wars Episode VI: Return of the Jedi. If you're curious, Entertainment Weekly has an image gallery of the lineup. Is this enough? Probably not. But that's jus the tip of the iceberg. Hasbro loves licenses – it loves to acquire the rights to new films and sell its own licenses to movie studios and game developers. Ever heard of a little film called Transformers: Dark of the Moon? While Hollywood has done its best to muck up the story, the key characters, and everything else we love about the property, Transformers is very much a toy property, giving Hasbro another major source of revenue. Not surprisingly, this major toy manufacturer likes to cross its own properties with other licenses for additional toy opportunities, resulting in the creation of Star Wars figures that transform into intergalactic spaceships. A quick glance at Hasbro.com will reveal a host of additional toys – from Nerf, Monopoly and Battleship to Tonka, GI Joe, Play-Doh, and the entire line of Playskool toys. But again, is it enough? We live in a different world now. Whereas the world I grew up in was one with a lot of toys, a lot of video games and little else, today's kids are exposed to the Internet, cell phones and tablets from a very young age. There are more distractions than ever before, and that could make it tough for Hasbro to maintain its market advantage. Additionally, the next batch of Star Wars toys – which is mostly a rehash of old figures released 10 years ago – is not likely to spark the same level of hype and sales that came with the original release of The Phantom Menace. At that time, moviegoers were going crazy for Star Wars, as it was the first new Star Wars film in roughly 16 years. While the Blu-ray packages have proven to be a huge seller (even at a time when piracy is running rampant), this in no way confirms that the fans are willing to rush back into toy collecting. Judging by the number of dust-collecting Star Wars items on Target TGT store shelves, I'd say most people are done with the action figures. Analysts are also concerned. This morning, Sterne Agee lowered its PT on Hasbro from $56 to $52. ACTION ITEMS: Bullish: With or without Star Wars toy collectors, Hasbro's 2012 lineup looks pretty strong. If you agree, consider the following trade:

• Retailers like Target and Wal-Mart WMT stand to benefit from the sale of Hasbro toys, as they are two of the first retailers consumers visit when shopping for their kids (or themselves).
• The more toys kids want, the more they want.
• Thus, if toy sales continue to climb, Mattel MAT – which manufactures its own line of hit toys, such as Barbie – is likely to ride Hasbro's wave of success, and vice versa.

Bearish: For those of you who are concerned that traditional toys are a diminishing (if not dying) form of childhood entertainment, consider the following:

• With the iPad and iPod Touch, Apple AAPL develops the ultimate toy distractions.
• Microsoft MSFT has built a distraction of its own, Kinect, which has proven to be hugely successful with kids, casual gamers, and techies who have found creative ways to hack the device.
• If kids move from toys to electronics, where will they shop – Toys ‘R' Us or Best Buy BBY? The latter offers a much greater variety of high-tech gizmos.

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