A Look At Hasbro’s Valuation
Our valuation methodology suggests that Hasbro’s (NDAQ:HAS) stock is worth $92, which is slightly ahead of the current market price. The company’s stock has plummeted since Toys ‘R’ Us filed for bankruptcy in Q3 last year. Hasbro’s sales channels include some of the largest retailers such as Walmart, Target and Costco in addition to toy store chains such as Hamleys, while e-commerce sales from Amazon, Alibaba, Lazada and JD.com are also increasingly contributing to net revenues. Still, the Toys ‘R’ Us bankruptcy (and subsequent planned liquidation) will likely have an impact on Hasbro in the near term. Even so, Hasbro’s revenues should resume a normal growth trajectory after a continued slowdown in revenue growth through the first half of 2018.
Our price estimate for Hasbro is based on a P/E multiple of 15 for 2018, which is slightly lower than the levels at which it has traded in previous years. Further, we expect Hasbro’s net margins to increase slightly this year. We have summarized our full year expectations for Hasbro on our interactive dashboard platform. We have used our forecasts for the full year to arrive at our price estimate. If you disagree with any of our forecasts or estimates, you can change key drivers such as segment revenue and margins to gauge how changes will impact its valuation.
Licensing Revenue Growth To Help Offset Slowdowns In Core Revenue Streams
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In previous years, Hasbro’s P/E ratio has consistently declined from 19.2 in 2015 to 18.6 in 2016 and further to 16.6 in 2017. We expect this trend to continue in 2018, with our forward P/E estimate standing at 15 for 2018. We expect the company’s net margin to increase to over 14%, continuing the recent trend of margin expansion. Its profitability is likely expected to increase for three primary reasons: First, Hasbro’s management indicated the company’s intent to limit growth in operating expenses, which should help in this regard. Secondly, the proportion of online sales from e-commerce channels is expected to continue to increase, which could help improve operating profits. And lastly, the new tax reforms are also expected to boost net income.
In terms of key segments, the company’s U.S. and Canada revenues increased 5% in 2017 to just under $2.7 billion. Growth slowed down from 15% in 2016 mainly due to the decline in sales from Partner Brands. Comparatively, the Franchise Brands, Hasbro Gaming and Emerging Brands segments reported revenue increases in the region. On the other hand, both Partner Brands and Emerging Brands witnessed revenue declines in international markets. We expect Hasbro’s U.S. and Canada revenues to increase around 4% on a y-o-y basis to $2.8 billion in 2018, while international revenues will grow at a slightly slower rate.
Meanwhile, Hasbro’s Entertainment and Licensing revenues have increased by around 8% in recent years. We forecast Entertainment and Licensing revenues to continue to increase at a similar rate to over $300 million for 2018, with all sub-segments contributing to this growth.
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