What happened
Shares of Hasbro (HAS -0.77%) were moving higher last month as the company posted mixed results in its second-quarter earnings report, agreed to sell the eOne production studio, and got some bullish analyst notes at the end of the month.
According to data from S&P Global Market Intelligence, the stock finished the month up 12%.
As you can see from the chart below, the stock actually traded flat for most of the month before gaining toward the end of August on the two positive analyst notes.
So what
Like other toy companies, Hasbro has struggled in the aftermath of the pandemic as it's faced difficult comparisons and a sluggish macro environment with consumer demand shifting away from discretionary goods and toward services like travel and restaurants. The company has also been exiting some product lines and reduced its inventory in order to improve margins.
Consequently, revenue in the quarter declined 10% to $1.21 billion, but that topped estimates at $1.12 billion.
On the bottom line, the company posted a decline in adjusted earnings per share from $1.15 to $0.49, missing estimates of $0.57.
Arguably more important, the company also agreed to sell the eOne film and TV business, the production studio it acquired in 2019 that includes Peppa Pig, to Lions Gate Entertainment for $500 million. Hasbro will retain ownership of Peppa Pig and other children-focused intellectual property (IP), selling adult content to Lions Gate. CEO Chris Cocks said the move would help the company refocus its entertainment strategy on an asset-light model.
The stock moved up just 1% on the earnings and eOne sale news but gained later in the month as a pair of analysts raised their price targets on the stock.
First, Bank of America analyst Jason Haas raised his price target on Hasbro from $85 to $90, saying that two recent digital game launches are performing "exceptionally well." He also said investors are undervaluing the company's ability to generate high-margin licensing revenue from its IP.
Later in the week, Stifel's Drew Crum raised his price target from $79 to $94, arguing that the company is building momentum as it reinvents itself as a streamlined entertainment company.
Now what
For the full year, Hasbro sees revenue falling 3% to 6%, but expects adjusted operating margin to increase 20 to 50 basis points.
With the success of Mattel's Barbie movie, Hasbro's entertainment strategy seems to make even more sense. While the core business is still struggling, the company's strategic direction seems to be the right one.
