This underrated Hasbro business is gaining traction amid weaker toy demand, analysts say

By Bill Peters

Wall Street hasn't appreciated the potential of the toy maker's digital-gaming business, BofA says

Over the past two years, Hasbro Inc. has suffered from weaker toy demand, leading to layoffs and declining sales.

But analysts at BofA on Friday said Wall Street hasn't appreciated the potential of the toy maker's digital-gaming business, which they believe could help drive a rebound for the company next year as demand for action figures and other toys takes longer to recover. However, they were upbeat on that segment as well, and also pointed to positive signs for Hasbro's Magic: The Gathering games.

With that in mind, BofA upgraded shares of Hasbro (HAS) - which is behind toys like Transformers and games like Monopoly - to buy from neutral, while raising its price target on the stock to $80 from $70.

Shares were jumping more than 6% on Friday.

The analysts said they expect that Monopoly Go!, a videogame that expands off the classic board game, could generate around $36 million in operating profit per quarter in the second half of the year. And they added that retailers, after backing off on stocking new toys, were starting to come around again.

"We think the consumer-products division continues to show signs of recovery following challenges in 2023," the analysts wrote. "We now see healthy overall toy-industry inventory levels while [Hasbro] management said that April sell-through was positive."

"Further, more recently, Costco (COST) said toys were a top-performing nonfoods category in April and May for the first time since November 2022," they added.

Toy demand has taken a hit from two years of higher prices for food and other basic necessities. During Hasbro's first quarter, sales in its consumer-products division, which includes toys, fell 21%. The analysts said they still expect Hasbro's sales overall to fall in the second quarter.

However, the company's first-quarter sales for digital gaming and Wizards of the Coast - which oversees the Dungeons & Dragons and Magic: The Gathering games - rose 7%.

BofA analysts in the past have said that Wizards of the Coast has risked alienating gamers, collectors and game shops after printing too many Magic: The Gathering cards. But on Friday, they said that demand for the game was "relatively stable despite core-player fatigue on the frequency of releases and high pricing."

"Store managers and players see traditional games remaining popular and believe there is excitement on the Modern Horizons 3 release (June 14)," they continued. "Even so, we see [third-quarter] Magic revenues down given last year's most successful release of all time with Lord of the Rings."

Shares of Hasbro are up 20.5% so far this year.

-Bill Peters

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06-14-24 1516ET

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