Hasbro Entertainment Stock (NASDAQ:HAS) Plunged Today. Here’s Why

Hasbro Entertainment (NASDAQ: HAT), the maker of a wide range of toys and games, is taking a hit so far in today’s trading session. Hasbro took a double downgrade from Bank of America (NYSE: BAC) securities, and the news behind it cast serious doubt on the company’s prospects. Analyst Jason Haas CFA previously had Hasbro at a buy, but downgraded it to “underperform” after its latest results. Haas said that BoA took a “deep dive” into the company and noticed a serious problem that may be going on with its “Magic: The Gathering” line.

Haas noted that Hasbro — based on word from collectors, dealers, game stores and distributors — overproduced Magic cards in an effort to turn a profit. Fair enough, but Haas noted that the move might “destroy the long-term value of the brand.” So Haas issued the double downgrade.

Haas is probably right about Hasbro’s game to milk value from its properties. However, I am not quite so pessimistic about the overall impact. I am now neutral on Hasbro. While Hasbro is probably killing its golden goose, it’s not the only one Hasbro has on hand.

Is HAS stock a buy, according to Wall Street?

With respect to Wall Street, Hasbro has a Moderate Buy consensus rating. This is based on five buys, three holds and one sell assigned over the past three months. The average Hasbro price target of $83.44 implies 44.6% upside potential. Analyst price targets range from a low of $42 per share to a high of $113 per share.

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Meanwhile, Hasbro has a ‘Perfect 10’ Smart Score on TipRanks. Having reached the absolute top of the scale, Hasbro is seen as certain to outperform the wider market.

However, this is not a position that is universally supported. Insider trading at Hasbro was tepid at best, with only one insider transaction occurring from May 2022 to October 2022. Retail investors with portfolios on TipRanks are generally neutral.

Hasbro’s other financial figures don’t exactly inspire confidence either. Its ready cash on hand has declined over the past three quarters, from $1.02 billion in March 2022 to $545.5 million in September 2022.

On the positive side, assets rose slightly to $9.63 billion versus June 2022’s $9.5 billion. Net debt has been on the rise for the last three quarters, but went from $2.98 billion in March 2022 to $3.46 billion in September 2022.

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Much less magic in an overcrowded gathering

Magic: The Gathering has been around for quite some time now – long enough that I can personally remember a brisk second-hand market for the cards. Players often bought second-hand cards to improve their decks with all the cards that made their strategies most effective.

However, various changes over the years have made that used market somewhat less than efficient. Reprints and various banned cards made it increasingly difficult to trade the older material. Magic: The Gathering itself now has several levels of play, ranging from Standard to Modern to Vintage, each with its own rulesets.

So yes, it’s entirely possible that Hasbro is overplaying its hand. Releasing new versions, printing large quantities, and making surprisingly few truly rare cards can be a problem for the company later on.

How much of a problem that is, though, is the real question.

Even assuming the worst, this is hardly the beginning of Hasbro’s range of intellectual property. As of November 9, 2022, Hasbro owns 818 distinct brands. Some lists are a bit redundant or repetitive, but the list is there, and those brands have their own projects going on.

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In March 2023, for example, the new Dicelings toy line will be released. It is set to coordinate with the release of the Dungeons & Dragons: Honor Among Thieves Movie. A new line of vintage-style retro Star Wars figures is in the works.

Granted, Magic: The Gathering is a big part of Hasbro’s bottom line. It generates about 15% of Hasbro’s revenue and better than a third of its EBITDA figures, reports said. Losses there will therefore be felt particularly strongly. Some of Hasbro’s brands are also weaker than others. Don’t look for “Pax, My Poopin’ Pup” to salvage Magic’s losses.

Conclusion: One dead, several hundred to go

Of course, most Hasbro investors would prefer to see Hasbro not burn entire brands to the ground trying to squeeze every penny out of them. If Hasbro ended up choking the life out of Magic: The Gathering, it would be terrible news, but probably survivable.

Hasbro may kill the magic, but there are plenty of other properties that could potentially take its place. That’s why I’m neutral on Hasbro. It remains to be seen how badly a loss Hasbro is courting by overprinting Magic cards.

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