The flurry of earnings this month has provided some seriously great fodder for the throw down, so let’s dive in–starting with legendary toy giants Hasbro and Mattel.
Hasbro boasts iconic brands including Disney, Disney Princesses and Star Wars. On July 18, the business reported a second-quarter EPS beat of 41 cents, compared to the Street’s estimate of 39 cents. Shares slipped in the immediate aftermath linked to investor concerns in regards to the Boys’segment alongside inventory. Even so, Hasbro is up over 3% for the year. Rapid Ratings International, which ranks companies according to their financial health among other activities, gave Hasbro a Financial Health Rating (FHR) of 86 out of 100 on June 16, up from 82 on December 27, 2015. The firm of late ranked the sector overall at 63.1.
Rival Mattel reported second-quarter earnings on July 20. The parent company to Barbie, American Girl and Hot Wheels reported a loss in two cents, compared to consensus of a loss with a nickel. One interesting nugget worth noting is that Mattel also announced it’d poached licensing of Jurassic World merchandise from Hasbro starting next year. Ouch! Barbie sales were strong, at 42% throughout the quarter, and shares are up over 43% for the year. Rapid Ratings of late ranked Mattel with a FHR of 65 out of a possible 100.
In reaction to earnings at Mattel, analyst Gerrick Johnson of BMO reiterated an Outperform rating and lifted the cost target to $40 from $35. In his report, Johnson pointed out that the outcomes, “paint an encouraging picture,” for Mattel.
“Mattel reported good sales from core brands like Fisher-Price, Barbie, and Hot Wheels. Recent acquisitions like MEGA Bloks and Thomas are rapidly expanding with Mattel’s global infrastructure. And new product lines are actually leaving an optimistic imprint, such as for example DC Super Hero Girls which is a hot seller in limited distribution and has become poised to go global. The quarter wasn’t without “hair” as gross margin guidance came down about 70 basis points and management sounded shaky in its commitment for 2016 sales to be “relatively close” to flat in local currency this season, despite losing 7% of sales with the departure of the Disney Princess license.”
Meanwhile, Timothy Condor and team at Wells Fargo rated Mattel Outperform with a valuation range of $36-$38. The team wrote that Mattel has long-term appeal and that earnings should start to ramp up in 2017.
“Mattel holds a powerful core portfolio of owned brands (Barbie, Hot Wheels, Matchbox, Fisher-Price, Thomas & Friends, MEGA, Monster High, American Girl) and key licensed brands (DC Comics, WWE, Dora the Explorer, Disney – CARS, Toy Story, Star Wars diecast vehicles). We believe the key to restoring business momentum is always to correcting the procedure by consistently telling good stories with owned brands, maximizing utilization of omni-channel media to introduce, reinforce and elevate the stories of owned brands, and employing a powerful daily feedback mechanism to monitor how individuals are getting together with the brands, then utilize this to maximize retail efficiency and increase the success of the R&D product pipeline.”
In the event of Hasbro, Piper Jaffray’s Stephanie Wissink and Lauren Wolff upgraded it to Overweight from Neutral and reiterated a $88 price target and noted that the business is well-positioned for Holiday and beyond.
“We think momentum returns to the business, led by girls and games in the second-half, and balances into 2017 across both owned and partner brands. The content lineup should create an advantageous tailwind to help support worldwide share gains, and we expect the degree of investment spend to moderate into 2017-2018. Inventory is expected to remain elevated through third-quarter, staging for the global shipment cycle in Princess & Frozen and backing double-digit growth in many core brands.”
Gerrick Johnson of BMO gave the business a Market Perform rating and $82 price target.
“Hasbro has performed well, with good product development and solid execution. We do have concerns that some profitable core brands could be tiring, like My Little Pony, Transformers, and Magic the Gathering. We are also cautious on Star Wars. But have observed Hasbro navigate through challenges before. And with the third incarnation of Beyblade soon returning, in addition to new fall retail sets, we maintain our wait and see approach.”