Argus Makes A Play Date With Hasbro, Initiates At Buy

Analysts at Argus initiated coverage of toymaker Hasbro, Inc. HAS on Friday with a Buy rating and $128 price target.

Hasbro's stock has benefited from six consecutive quarters of encouraging results, partly due to the company's strong product development efforts, Argus' John Staszak noted. At the same time, management is actively looking to take market share away from its competitors through partnerships with media and entertainment companies.

Hasbro's core brands should also see a return to growth, including "Star Wars" and "My Little Pony."

Looking forward, the company is expected to boost its revenue for the full year 2017 by 8 percent to $5.4 billion and another 4-percent increase the following year to $5.6 billion. Over the same period, the analyst is expecting operating margins to improve by 20 basis points to 16.6 percent this year and increase next year to 16.8 percent.

The analyst is also modeling the toymaker to earn $5.00 per share in 2017 which is above the consensus estimate of $4.93 per share. Staszak's 2018 EPS estimate of $5.35 is also above the Street's $5.18 per share and fully factors in continued stock buybacks and expectations for continued positive earnings surprises.

Finally, the analyst cited stability in the stock as the two biggest shareholders collectively control 25 percent of all outstanding shares, which makes it difficult for a minority shareholder to buy a stake and push for changes.

Shares of Hasbro are trading at 22 times the analyst's 2017 EPS estimate, which is above the peer group's average multiple of 19 and an even greater premium multiple of 25.6x is justified given the company's prospects for "steady" toy demand.

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