With Pending Sale of Most Entertainment Assets, Hasbro Positioned To Focus on Core Competencies

Hasbro HAS continues to hold a leading position in the nearly $30 billion North American toy industry (Circana), developing, manufacturing, and marketing well-known global brands that include Transformers, My Little Pony, and Nerf. The firm operates a relatively differentiated business model, thanks to its digital properties exposure, content creation ability, and key licensing arrangements, abilities that were augemented with soon-to-be-divested Entertainment One (EOne). Additionally, production capabilities support Hasbro’s multimedia presence, as does Discovery Family, a joint venture that brings Hasbro’s brands to television, bolstering the firm’s brand blueprint strategy. Furthermore, Hasbro has historically dominated the big-screen, building brand loyalty and generating new streams of revenue from its licensing businesses (like Star Wars and Marvel). We think Hasbro and the toy industry have a decent runway for growth ahead through international growth (Asia-Pacific and emerging markets still provide longer-term growth potential through share gains) and acquisitions of strategic players that fit into Hasbro’s portfolio (most recently D&D Beyond).

We rate Hasbro’s moat as narrow, as a market leader with a differentiated niche in the entertainment space. It also has rich exposure to games through the Wizards of the Coast line, where peers have failed to erode share given the loyal history of players in the category. However, strong returns on invested capital that Hasbro generates will continue to attract competition, which will force it to continuously innovate to maintain its leadership position, resulting in elevated development costs.

However, we don’t think that investments to protect the brands will hurt cash flow potential, as cash flow rises from catalysts like strong film launches, new licenses, and expense leverage (with a $250 million-$300 million cost savings initiative underway through 2025). This will allow investors to be rewarded through rising dividends (above 4% yield) and a share buyback program, along with a return to sub-3 times forecast debt/EBITDA in 2024 (as Hasbro uses proceeds from the sale of EOne production assets to reduce debt).