The Toy Story: After Weak Holidays, Hasbro Set for Rebound, Mattel Reliant on Barbie

Big toy makers Hasbro Inc. HAS and Mattel, Inc. MAT both finished 2018 below expectations, but there are bright spots for the coming year, particularly for Hasbro.

The Analyst

MKM’s Eric Handler continues to have a Buy rating on Hasbro, but lowered his price target to $102 from $110, while lowering Q4 earnings estimates. Handler continues to have a Neutral rating on Mattel, with a $12 price target, down from $13.

The Thesis

Handler is more bullish on Hasbro, which he says is poised to bounce back in 2019 even after soft holidays.

Investors should see above average growth in the new year, due to a combination of a strong product lineup, ongoing efficiencies and easing revenue headwinds, Handler said. He also said investors should benefit from a high single-digit dividend increase, and the possibility of more share repurchases.

Lower Q4 estimates reflect the fact that the market is still dealing with the Toys 'R' Us bankruptcy last year, Handler said. But the 2019 bright spot is that stores don’t appear to have a lot of excess toys on the shelf, which should reduce inventory liquidations.

Cautious On Mattel

Handler remains more cautious on Mattel, though he said it too could benefit from the low inventories, especially as the market moves farther out from the Toys 'R' Us closings.

But Mattel’s path to recovery isn’t as clear in terms of products, Handler said. All of its products, with the exception of the iconic Barbie line, did poorly this past holiday season – and where the company will find future success beyond the well-known doll remains unclear, he said. Hot Wheels, Fisher Price and American Girl all saw year-over-year declines.

The Barbie bright spot could get a further boost eventually because Mattel announced earlier this month that it will work with Warner Bros. on a Barbie movie featuring actress Margot Robbie. The movie is still in the early stages, though, and it’s not clear when it will be in theaters.

Mattel also has to replace an estimated $40 million in revenue in 2020 from the loss of action figure licenses for DC comic characters.

Price Action

Mattel traded at $12.62 Friday afternoon, while Hasbro traded at $88.80.

Related Links:

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