Toy Companies Hasbro, Mattel, Not Back to Normal Yet

Sorry, kids. You know those returns on toy stock profits you’ve been asking for? Well, the companies are trying. But you may have to wait until next year. Sometimes you have to wait for good things.

That's more or less the takeaway from BMO Capital Markets on Mattel Inc. MAT and Hasbro, Inc. HAS, the two leading toy makers, after this month’s Toy Fair New York, the industry’s major U.S. trade show.

Both companies are trying to rebound from a rough 2018, thanks in part to the closing of one the industry’s biggest sales channels, Toys R Us, which went out of business last year.

Mattel recently lowered its guidance, projecting flat gross sales in constant currency in 2019, sending its stock plummeting.

Hasbro continues to say it hopes to be back to the levels of revenue and profits it achieved before last year’s stumble, but some on the Street remain skeptical.

The Analyst

BMO Capital Markets analyst Gerrick Johnson maintained an Outperform rating on Mattel and lowered the price target from $23 to $20.

Johnson maintained an Underperform on Hasbro and lowered the price target from $76 to $75. 

Mattel

BMO is optimistic that new management at Mattel can make needed changes in culture and develop new products, digital content and partnerships to drive sales growth, Johnson said in a Tuesday note. 

Aside from the guidance change, the analyst said the most important information gleaned from Toy Fair was detail around plans to increase operational efficiency and improve execution.

“We have been encouraged by the steps Mattel is taking to reposition its business for profitable growth,” Johnson said, adding that the company’s turnaround plan looks on the right track.

“We are reluctantly accepting the fact, however, that the growth portion of the turnaround plan may take longer than we originally anticipated,” the analyst said. “We still believe there is a lot of value at Mattel that will continue to be unlocked as the transformation progresses."

Hasbro

BMO reduced its 2019 earnings per share estimate for Hasbro from $4.85 to $4.30 based on new guidance from Hasbro at Toy Fair. BMO also reduced its revenue estimate for the company by $20 million to $4.96 billion.

Hasbro’s value may be stretched, Johnson said. BMO sees risks to estimates based on underperformance by the Nerf and My Little Pony brands and has concerns that movie tie-ins may not be as good as some hope.

“With or without Toys R Us, we believe Hasbro lost retail share in 2018,” Johnson said. “Management believes that it can return to 2017 revenue and operating profit levels by 2020." 

BMO is "not yet bought in on this forecast," he said. 

Related Links:

Mattel Plummets On Lowered Guidance, One Week After Earnings-Inspired Spike

Optimism In Toyland: Wells Fargo Likes Mattel, Hasbro Moving Forward