Hasbro Earnings: Sale of eOne Media Returns Focus to Core Competency While Lifting Operating Margin

With narrow-moat Hasbro's pending sale of eOne's film and TV lines to Lionsgate, we expect the firm will return to an asset-light state that sets it on a course for higher operating margins ahead. It expects $375 million in cash proceeds from the transaction (to close in 2023) to pay down $400 million in debt, which we think will return Hasbro to net debt/EBITDA below 3 times, a metric untouched since prior to the eOne tie up (2019). The loss of 85% of entertainment sales affects our valuation negatively, but we think the sale of the lowest margin business could result in a roughly 200-basis-point lift to our operating margin forecast, with our terminal forecast rising to more than 23% from 21.6% before the earnings call. While Hasbro has yet to guide on the transaction's impact, moving cost of goods sold and program production costs back toward pre-eOne levels and also incorporating an updated 2023 outlook renders a low-single-digit decline to our $104 fair value estimate. Even still, shares remain attractive.