Hasbro's Investor Day: Does Optimus Prime Beat Mattel's Barbie?

With a highly competitive environment and low barriers to entry, the toy industry continues to offer challenges, even for big household names like Hasbro HAS and Mattel MAT.

On Tuesday, Hasbro is hosting its 2022 investor day, two weeks ahead of its Q3 earnings call on Oct. 18.

Mattel, for its part, recently made headlines with the announcement of the 2023 launch of a new Barbie movie, featuring Margot Robbie and Ryan Gosling, and produced by Warner Bros. WBD.

According to a recent report by Fortune Business Insights, the toy industry is virtually recession-proof. Yet who amongst the market leaders has the best stock to own?

Is Hasbro A Buy?

Hasbro owns approximately 1500 brands including Magic: The Gathering, Nerf, My Little Pony, Transformers, Play-Doh, Monopoly, Baby Alive, Dungeons & Dragons, Power Rangers, Peppa Pig And Pj Masks.

The global play and entertainment company wants to let investors know it's not toying around when it comes to turning a profit. Its 2022 investor day will feature talks and panels from leaders such as CEO Chris Cocks and Eric Nyman, president and chief operating officer.

On its Q2 earnings call from July 19, the company posted $1.34 billion in net revenue with  $308.3 million in EBITDA (up 6% from the previous quarter) and $1.15 earnings per share. 

Revenue came in slightly off from a consensus of $1.37 billion. Still, Hasbro is expecting low-single digit sales growth in 2022.

The company’s subsidiary of Wizards of the Coast and its digital gaming and entertainment arms were the stars of the call, with “outstanding” profitability, according to analyst Linda Bolton Weiser at D.A. Davidson.

The 2019 acquisition of Entertainment One (who make Peppa Pig and PJ Masks) for $3.8 billion opened Hasbro to a more diversified strategy, outside of the sale of physical toys.

With this M&A action, the company is planning to develop and produce more than 200 projects across TV, film, and animation based on Hasbro’s IPs.

Analyst Linda Bolton Weiser posted a one-year price target of $128 and a Buy rating in her note from July 19.

Hasbro shares are trading at $73.15 on Tuesday, down over 28% since January.

But is the company still on a path to reaching D.A. Davidson’s $128 projection by mid-year 2023?

On Monday, JP Morgan cut Hasbro’s target price to $85 from $90, showing a more modest but still bullish outlook for the company’s future. This rating is in line with Benzinga data on the analyst consensus, which is averaging at an $85 price target and a Buy rating.

In a note from two weeks ago, Seeking Alpha analyst Patrick Doyle places special emphasis on the Wizards subsidiary, noting that the brand has announced the launch of a new Dungeons and Dragons game that integrates virtual options and is relatively cheap to buy. 

Affordability in its products can serve as an extra hedge against a recession, as consumers are more likely to purchase them regardless of the state of the economy.

For Doyle, HAS is a solid buy, with shares currently on the cheap side and decent financial results in the last call.

Mattel Stays Traditional With Less Risk And Less Diversification

In a note from Aug. 24, analyst Linda Bolton Weiser put a price target for Mattel at $45. 

Shares were trading at $20.10 on Tuesday, and are down 7.52% since January.

The company continues on a more traditional approach to toy manufacturing, owning a catalog of iconic brands, including Barbie, Hot Wheels, Fisher-Price, American Girl, Thomas & Friends, UNO and MEGA.

On its Q2 call, Mattel posted $1.24 billion in revenue, up 20% year-over-year.

The Barbie and Hot Wheels brands continue to show impressive growth, proving that the company’s most iconic brands continue to drive revenue for the entire company. The Hot Wheels brand, specifically, posted 31% of year-over-year growth.

But the company is also exploring the creation of new brands. In July, Mattel announced purchasing the rights to produce a line of toys based on Elon Musk’s SpaceX, which will hit shelves in 2023.

While Mattel continues to bet on the eternal childhood drive to play with dolls and physical toys, Hasbro is looking to diversify into the digital and media territories, where vast competition reigns, but supply chains are not as easily affected by global disruption.

Photo by Dylan Hunter on Unsplash.