Slumping sales and the loss of a major customer has sent Hasbro, Inc. (Nasdaq: HAS) stock tumbling 16.7 percent in the past year. Unfortunately for Hasbro investors, analysts say things could get even worse before they get better.
According to BMO Capital Markets analyst Gerrick Johnson, there have been a number of headwinds working against Hasbro in recent quarters, none of which are likely to ease up any time soon.
[See: 7 Consumer Stocks Paying Big Dividends.]
First, Johnson says toy stocks are typically seen as defensive plays. With the stock market and the U.S. economy firing on all cylinders, he says investors have been focusing more on high-growth options, such as video game stocks.
Second, Johnson says the market is pricing too much optimism into Hasbro stock related to last year’s Toys R Us bankruptcy. Johnson says the stock’s 9 percent gain since the bankruptcy filing and 17 percent gain since its first-quarter earnings report suggest investors wrongly think that Hasbro is beginning to rebound.
“We think the Toys R Us liquidation could be more impactful to 2Q financials, holiday 2018 and 2019 than investors may realize,” Johnson says.
He says retailers will be very selective with holiday inventory this year and will be careful not to end the year with too much product.
Finally, Johnson says key Hasbro’ brands and products haven’t been performing up to expectations. Hasbro has 10 major movie tie-ins, and Johnson says movie-related toys have fallen short of expectations in the past two years. In addition, Paramount has cancelled its “Transformers 7” movie, and Johnson says there has been speculation that Walt Disney Co. ( DIS) may scale back its “Star Wars” spin-offs after a poor performance from “Solo” this year.
In addition to lack of box office support, Johnson says Hasbro is suffering from “brand fatigue” in several of its key franchise brands, such as My Little Pony, Nerf, Marvel and Star Wars.
[See: 7 of the Best Stocks to Buy for 2018.]
While Johnson says Hasbro is gaining market share from competitors and remains a market leader in product development and entertainment partnerships, there are just too many trends working against the stock at the moment.
“We have some lingering concerns about valuation, brand fatigue, over-reliance on movies, and an uncertainty in the toy industry,” Johnson says.
BMO has an “underperform” rating and $75 price target for HAS stock.
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Hasbro, Inc. (HAS) Stock Has Too Many Problems originally appeared on usnews.com
