EUR 850.00 For Business Accounts Only

Morningstar | Solid Content and Power Rangers Launch Provide Growth for Hasbro in 2019, Restoring Profitability

Hasbro continues to hold a leadership position in the $28 billion domestic toy industry, developing, manufacturing, and marketing 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. Business relationships with firms like Backflip Studios and Activision have expanded Hasbro's presence in the digital arena, but also important is Discovery Family, a joint venture with Discovery that brings Hasbro Studios productions to television and helps Hasbro's brands connect with a wide audience. In addition, Hasbro dominates in the big-screen arena, building brand loyalty and generating new streams of revenue from its licensing businesses (like Star Wars, Marvel, and Disney Princess). 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 small, strategic players that fit into Hasbro's overall portfolio (for example, Boulder Media). We believe Hasbro has a narrow moat, as a market leader with a differentiated niche in the entertainment space that will expand through its own Allspark Pictures as well as a coproduction relationship with Paramount. The strong returns on invested capital that the toy industry can generate will continue to attract competition, however, which will force Hasbro to continuously improve its business and innovate to maintain its leadership position, resulting in higher product development costs than in the past.We don't think these higher investments to protect the brands will hinder cash flow potential, as cash flow rises from catalysts including strong film launches, new licenses, and expense leverage. This will allow investors to be rewarded through rising dividends (3% yield) in addition to a consistent share-buyback program; Hasbro expects to repurchase $100 million-$150 million in shares during 2019. This should keep the shares on the radar of income investors.