Hasbro's Q2 Report Leaves KeyBanc Bullish Ahead Of Holiday Shopping Season

Although the second quarter is a seasonally insignificant one for Hasbro, Inc. HAS, the toymaker's solid performance has created strong momentum ahead of the holiday season, according to KeyBanc Capital Markets.

The Analyst

Brett Andress maintained an Overweight rating on Hasbro and reduced the price target from $115 to $135.

The Thesis

Hasbro seems to hold further upside to current estimates, as the toymaker is entering the holiday season with strong momentum —and its key growth drivers are continuing to scale, Andress said in a Sunday note. (See his track record here.) 

The company’s second-quarter sales came in at $25.7 million on July 23, above KeyBanc’s estimate.

Sales were led by a strong performance by franchise gaming and a slew of "Magic" releases, the analyst said.

Operating margins of 13% compared well with KeyBanc’s estimate of 9.1% and the consensus estimate of 9.5%. 

These figures drove the earnings beat, with an adjusted EPS of 78 cents beating KeyBanc’s estimate of 47 cents and the consensus of 50 cents, Andress said. 

The expectation that Magic Arena’s EBIT contribution will reach around $100 million by 2021 appears conservative, given that this business seems to have contributed more than $80 million in annualized revenues, the analyst said. 

KeyBanc raised its EPS estimates for fiscal years 2019 and 2020 from $4.45 to $4.75 and from $5 to $5.35, respectively.

"With the momentum factor back in play for HAS, we believe estimates continue to grind higher from here, creating an attractive setup on what remains a catalyst-rich, core leisure holding," Andress said. 

Price Action

Hasbro shares were trading higher by 1.5% at $125.53 at the time of publication Monday. 

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Public domain photo via Wikimedia.