Analysts rerated Hasbro, Inc (HAS  ) after mixed quarterly print. On Thursday, the company reported a third-quarter sales decline of 15% to $1.281 billion, marginally missing the analyst estimate of $1.295 billion.

  • JPMorgan analyst Christopher Horvers maintained an Overweight rating on Hasbro and lowered the price target to $79 from $82.
  • BofA Securities analyst Alexander Perry reiterated a Buy rating on Hasbro with a price target of $95. The stock is trading higher on Friday.
JPMorgan: Hasbro revised guidance, with the Consumer Products outlook lowered due to a weaker third quarter, especially in Star Wars and NERF, while raising the Wizards of the Coast (WOTC) outlook due to solid performance from MTG and Monopoly Go!

Despite this, Hasbro maintained its full-year EBITDA guidance, which the market views as conservative.

Revenue for Consumer Products fell by 10%, partly due to a 4% headwind from fewer closeout sales. While impacting the top line, this supported a 150 bp gross margin improvement. Management expects year-on-year declines to ease in the fourth quarter with accelerating point-of-sale trends bolstered by increased advertising and product innovation.

WOTC revenue surpassed expectations by 14% due to successful MTG releases and resilience in titles like Baldur's Gate III. Although Monopoly Go! met guidance, its conservative outlook implies a 24% decline in WOTC revenue for the fourth quarter, partially impacted by shipment timing.

Hasbro's gross margin reached 70.4%, driven by supply chain savings and closeout sales discipline. Management aims to continue realizing supply chain efficiencies while reducing closeouts to prioritize profitability.

Horvers' estimates for Hasbro remain ahead of consensus. He noted that market expectations for cost efficiency and digital gaming growth are too low. According to the analyst, both areas will likely gain momentum in the second half of 2024 and early 2025.

Horvers noted that the industry is primed for growth this year despite a shorter holiday season. Retailers like Target Corp (TGT  ) increasingly focus on event-driven traffic, with toys as a significant draw. The analyst said Hasbro is well-positioned for the second half of 2024, especially with the Transformers shift to the third quarter and merchandising improvements under new management.

Horvers said Hasbro's $750 million cost reduction plan is expected to be fully implemented by late 2025. The Consumer Products segment should also benefit from planned innovation and the acceleration of MTG's Universes Beyond strategy (including Final Fantasy and Marvel tie-ins), as per the analyst.

Horvers' December 2025 price target is $79, based on an ~11.5 times EV/EBITDA on 2026 estimates. Per Horvers, this target reflects potential margin expansion driven by Hasbro's 2024 cost and product mix strategies, which could warrant a higher valuation if the momentum continues.

BofA Securities: The rating reflects Hasbro's benefits from the shift to gaming and digital gaming alongside a turnaround in its Consumer Products segment.

Hasbro's third-quarter adjusted EPS reached $1.73, surpassing the projected $1.27 due to stronger-than-expected operating margins in Consumer Products (15.1% vs. 10.0% expected) and Wizards of the Coast (44.9% vs. 42.0% expected). Wizards revenue aligned with forecasts with Monopoly Go! contributing $30 million, and Magic: The Gathering outperforming by 3% on unexpected boosts from Bloomburrow and Duskmourn releases.

Although Consumer Products revenue dropped 10% (compared to the anticipated 5%), operating profit exceeded estimates, benefiting from cost structure improvements that offset volume decreases.

Hasbro anticipates a 19% decline in Wizards of the Coast for the fourth quarter due to a projected $70 million drop in Magic: The Gathering, primarily impacted by a $40 million headwind from the prior year's Lord of the Rings holiday release and a $30 million timing shift for a January 2025 Remastered set. Digital revenue should remain flat, with contributions from Monopoly Go! expected to balance out Baldur's Gate 3. Wizards' operating margin is projected at 22%, reflecting volume-related headwinds. The adjusted EPS estimate for fiscal 2024 increases to $4.00, up from $3.88, due to the strong third-quarter performance.

Hasbro forecasts a 3% decline in Consumer Products revenue for the fourth quarter, revising its guidance by $100 million. Factors include a $50 million reduction from fewer low-margin closeouts, a $35 million drop from lower entertainment-backed brands, especially Star Wars, and a $15 million impact from execution challenges in leaner inventory management. A sequential decline to a 7% CP operating margin is expected in the fourth quarter, reflecting higher royalties, such as from Beyblade, and increased managed expenses.

The outlook for 2025 appears strong, with projected growth from Magic: The Gathering driven by three new Universes Beyond sets, including a $30 million benefit from timing shifts in the first quarter, a robust theatrical lineup, highlighted by Captain America (February 14) and Fantastic Four (July 25), anticipated first-quarter gains from a full quarter of Monopoly Go! beyond minimum guarantees, with a $10 million monthly run rate and potential double-digit EBIT margin growth in Consumer Products if volume increases continue.

Price Action: HAS stock is up 1.24% at $66.92 at the last check Friday.