After holding up relatively well throughout a difficult 2017 in the toy industry, Hasbro, Inc. (Nasdaq: HAS) stock has dropped more than 12.1 percent in the past month on investor concerns that the Toys R Us liquidation will make life particularly hard for Hasbro in 2018.
The loss of one of Hasbro’s largest retail partners is certainly a headwind for the company, but analysts say the long-term Toys R Us impact may not be as large as the market seems to think.
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According to BMO Capital Markets analyst Gerrick Johnson, Toys R Us has represented an average of 9 percent of Hasbro’s sales over the past three years, and the company was likely assuming a 6 percent share in 2018.
Johnson predicts that Hasbro will write off $20 million in Toys R Us outstanding accounts receivable as part of its operating expenses in the first quarter.
“We think the total impact to lost TRU shipments is about 350 basis points, though we had already factored in 40 percent of the U.S. TRU store base liquidating,” Johnson says.
As a result of the liquidation, BMO has reduced its 2018 net revenue estimate for Hasbro by $107 million to $5.1 billion and lowered its full-year earnings per share estimate from $5.25 to $4.82.
Looking ahead to 2019, Johnson expects Hasbro will be able to make up roughly 75 percent of lost Toys R Us sales via sales through other retail partners.
Despite the Toys R Us turmoil, Johnson says Hasbro is gaining market share on its struggling competitors, including Mattel ( MAT).
“We believe Hasbro is gaining share through a new approach to product development, partnering with the best entertainment brands, and extending content around its brands,” Johnson says.
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Even without Toys R Us, D.A. Davidson analyst Linda Weiser says there are still plenty of things for long-term investors to love about Hasbro.
“We continue to be impressed with the effectiveness of HAS’ brand blueprint strategy, based on insights, storytelling and innovation, and its solid execution in a volatile retail environment,” Weiser says. “There are numerous long-term drivers of operating margin expansion, and with seven major theatrical releases and the new Power Rangers license, we should see an acceleration of sales growth in 2019.”
BMO has a “market perform” rating and $83 price target for Hasbro. D.A. Davidson has a “buy” rating and $126 target for HAS stock.
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Hasbro, Inc. (HAS) Is Just Fine Without Toys R Us originally appeared on usnews.com
