Hasbro, Inc. (HAS) is an international play and entertainment company dedicated to creating the best possible play and entertainment experiences primarily for all children and families. Hasbro’s portfolio of iconic brands includes NERF, MAGIC: THE GATHERING, MY LITTLE PONY, TRANSFORMERS, PLAY-DOH, MONOPOLY, DUNGEONS & DRAGONS, and PEPPA PIG, among others.
The company provides immersive brand experiences for multinational audiences via consumer products such as toys, movies, and video games. In order to expand its global presence besides children’s toys, the company has been developing video games through its eOne studio and Wizards gaming businesses which should diversify its cash flows over the long run.
Hasbro’s financials have been expanding over the past few years, while the company’s performance remained robust and rather undaunted during the pandemic. Following the stock’s modest correction year-to-date, its dividend yield has been pushed above 3%, which makes for a solid capital return considering payouts are very well covered. That said, there are likely more attractive investment cases out there these days. Consequently, I am neutral on the stock.
Stepping into 2022 with Sound Performance
Hasbro recently reported its Q1 results, stepping into Fiscal 2022 with relatively favorable momentum. The company performed nicely, growing revenues to $1.16 billion, 4% higher year-over-year, or 7% excluding its Music business, which the company sold at the beginning of last year’s Q3.
Revenues grew in each segment. Specifically, Consumer Products, Wizards of the Coast & Digital Gaming, and Entertainment grew each of their top lines by 3%, 9%, and 4%, respectively.
One of the better performers for the quarter was Hasbro’s latest MAGIC: THE GATHERING release, Kamigawa: Neon Dynasty, which, as management mentioned during the conference call, was the best-selling winner set of all time, surpassing last year’s set sales by 28%. In fact, Neon Dynasty is now the fifth MAGIC set to produce revenues north of $100 million.
The company’s Digital Gaming revenue growth of 4% would have, in fact, been even stronger if it wasn’t for the company pushing its MAGIC release, Infinity, from March to September. Management did that to aid its supply chain to keep up with the strong demand for the core MAGIC business, which points towards further improving results through the rest of 2022.
Despite producing robust revenues, like every other company currently shipping physical goods, Hasbro is being impacted by increased capitalized input and freight costs that have a negative influence on its gross margin. Specifically, high freight costs impacted both COGS and distribution, resulting in adjusted operating profit coming in at $141.8 million, 19% lower year-over-year.
Accordingly, net income also declined, coming at $62.9 million, or $0.44 per share. Note that while this implies a 48% decline year-over-year, last year’s results had been boosted by an extraordinary gain of $30.1 million. Excluding this, net income declined by 28% versus the comparable period last year.
Despite the current challenges, management boosted its outlook for the year, expecting an adjusted operating profit margin of 16%, a noteworthy gain versus last year’s 15.5%. Note that Q1’s adjusted operating profit margin was 12.2%. Thus, management expects substantial supply chain improvements through the rest of the year.
Dividend & Valuation
Hasbro’s dividend history has been quite extensive, dating back to 1977. The dividend grew from 2001 to 2020 (excluding a special payout in 2012), but it remained flat in 2021 amid the company’s choice of conserving liquidity due to the COVID-19 pandemic. Earlier in the year, however, Hasbro resumed its dividend increases. This time, it increased ~3% to a quarterly rate of $0.70.
Currently, the stock’s yield stands close to 3.2%, while based on analysts’ Fiscal 2022 consensus EPS estimate of $5.22, the forward payout ratio stands under 54%. With earnings likely to improve notably in the short term amid supply chain bottlenecks hopefully easing, I believe that the pace of dividend growth will likely increase.
Regarding Hasbro’s valuation, based on the same EPS estimate, the stock is currently trading with a forward P/E of 17. Considering that margins are likely to keep improving next year, I believe this is a fair multiple. Still, I wouldn’t say shares are cheap, relatively speaking, as there are multiple opportunities out there offering a better growth/valuation mix following the market’s violent sell-off.
Wall Street’s Take
Turning to Wall Street, Hasbro has a Strong Buy consensus rating based on six Buys and two Holds assigned in the past three months. At $108.50, the average Hasbro price forecast implies 21.7% upside potential.
Takeaway
Hasbro’s diversified portfolio of iconic brands performed well during the pandemic. Meanwhile, the company is starting the year off with solid growth momentum.
With every segment growing, the postponement of Magic: Infinity to September (which will further contribute to the top line), and margins set to improve through the year, Hasbro appears well-positioned to keep posting robust results moving forward.
Shares appear to be relatively fairly priced, while due to the noteworthy dividend yield and comfortable room for further dividend hikes, dividend-growth investors are likely to view Hasbro as an attractive buy at its current price levels.
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