MKM Partners: After Toys 'R' Us Struggles, Hasbro Poised For Strong 2019

While 2018 has proven a difficult year for the toy industry, Hasbro, Inc. HAS is well-positioned for a material fundamental recovery over the coming years, according to MKM Partners. 

The Analyst

MKM analyst Eric Handler upgraded Hasbro from Neutral to Buy with a price target lifted from $92 to $115.

The Thesis

The sector continues to address the fallout from Toys R Us' bankruptcy, but Hasbro has taken the necessary steps to generate $500 million of incremental revenue, Handler said in the research report. (See the analyst's track record here.) 

They are:

• $150 million in toy sales from "Frozen 2." 
• An incremental $125 million in "Star Wars" toy sales. 
• Live action movie tie-ins, including "Beauty and the Beast" and "Aladdin."
• Continued momentum in the "Magic the Gathering" cards and game.
• Marvel-related toy sales.

Beyond 2019, Hasbro's acquisition of the "Power Rangers" franchise should result in an incremental $100 million or more in revenue in 2020, the analyst said.

Hasbro bought the franchise earlier this year for $522 million; the TV show is broadcast in 150 markets across the world and boasts multiple monetization routes through classic characters and new movies.

Given the multiple revenue catalysts ahead, Hasbro should be able to exceed its operating cash flow goal of $600-$700 million and reach a sustained 10-percent annual dividend hike and share repurchases of more than $250 million per year, Handler said. Encouragingly, the toy company can do so without touching its current cash base of around $1.2 billion, which adds another layer of financial flexibility, in MKM's view. 

Price Action

Hasbro shares were trading near-flat at $98.08 at the time of publication Wednesday.

Related Links:

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