Hasbro, Inc. (POSSESSES) is an international games and entertainment company dedicated to creating the best gaming and entertainment experiences possible, primarily for all children and families. Hasbro’s portfolio of iconic brands includes NERF, MAGIC: THE GATHERING, MY LITTLE PONY, TRANSFORMERS, PLAY-DOH, MONOPOLY, DUNGEONS & DRAGONS, and PEPPA PIG, among others.
The company delivers immersive brand experiences to a multinational audience through consumer products such as toys, movies and video games. In order to expand its global presence in addition to children’s toys, the company has been developing video games through its eOne studio and Wizards games business, which should diversify its cash flow in the long run.
Hasbro’s finances have grown over the past few years, while the company’s performance has remained solid and rather fearless during the pandemic. Following the stock’s modest year-to-date correction, its dividend yield was pushed above 3%, making it a solid return on capital given that payouts are very well hedged. That said, there are probably more attractive investment cases these days. Therefore, I am neutral on the title.
Enter 2022 with Sound Performance
Hasbro recently released its first quarter results, entering fiscal 2022 with relatively favorable momentum. The company performed well, growing revenue to $1.16 billion, up 4% year-over-year, or 7% excluding its Music business, which the company sold early in the third quarter from last year.
Revenues increased in every segment. Specifically, Consumer Products, Wizards of the Coast & Digital Gaming and Entertainment grew each of their major lines by 3%, 9% and 4%, respectively.
One of the best performers of the quarter was Hasbro’s latest MAGIC: THE GATHERING release, Kamigawa: Neon Dynasty, which, as management mentioned on the conference call, was the top-selling winning set. of all time, surpassing last year’s set sales by 28%. In fact, Neon Dynasty is now the fifth MAGIC set to gross north of $100 million.
The company’s 4% growth in Digital Gaming revenue would, in fact, have been even stronger had the company not pushed its MAGIC version, Infinity, from March to September. Management did this to help its supply chain meet strong demand for MAGIC’s core business, indicating further improvement in results throughout 2022.
Despite producing strong revenue, like every other company currently shipping physical goods, Hasbro is being impacted by rising capitalized input and freight costs that are negatively influencing its gross margin. Specifically, high transportation costs impacted both COGS and distribution, resulting in adjusted operating income of $141.8 million, down 19% from a year to year.
As a result, net earnings also fell to $62.9 million, or $0.44 per share. Note that while this implies a 48% year-over-year decline, last year’s results were boosted by an extraordinary gain of $30.1 million. Excluding this, net profit decreased by 28% compared to the comparable period of the previous year.
Despite the current challenges, management has improved its outlook for the year, expecting an adjusted operating profit margin of 16%, a notable gain from 15.5% last year. Note that Q1 adjusted operating margin was 12.2%. As such, management expects substantial supply chain improvements throughout the year.
Dividend & Valuation
Hasbro’s dividend history is quite long, dating back to 1977. The dividend increased from 2001 to 2020 (excluding a special payment in 2012), but remained stable in 2021 as the company chose to conserve cash due to the COVID-19 pandemic. Earlier in the year, however, Hasbro resumed its dividend increases. This time it rose about 3% to a quarterly rate of $0.70.
Currently, the stock’s yield stands at nearly 3.2%, while based on analysts’ consensus FY2022 EPS estimate of $5.22, the forward payout ratio is less than 54%. With earnings likely to improve significantly in the near term amid easing supply chain bottlenecks, I think the pace of dividend growth will likely pick up.
As for Hasbro’s valuation, based on the same EPS estimate, the stock is currently trading with a forward P/E of 17. Given that margins are expected to continue to improve next year, I think it’s a fair multiple. Still, I wouldn’t say equities are cheap, relatively speaking, as there are plenty of opportunities that offer a better growth/valuation mix after the market selloff.
The Taking of Wall Street
When it comes to Wall Street, Hasbro has a Strong Buy Consensus Rating based on six Buys and Two Takes assigned over the past three months. At $108.50, Hasbro’s average price prediction implies 21.7% upside potential.
Hasbro’s diverse portfolio of iconic brands has held up well during the pandemic. In the meantime, the company is starting the year with solid growth momentum.
With each segment growing, the delay of Magic: Infinity to September (which will further contribute to revenue), and margins expected to improve throughout the year, Hasbro looks well positioned to continue posting solid results in the future.
The shares appear to be relatively fairly priced, while due to the remarkable dividend yield and comfortable room for further dividend increases, dividend growth investors are likely to view Hasbro as an attractive buy at its levels. current prices.
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