What happened
Shares of Hasbro (HAS +0.40%) were trading up 2.9% as of 1:11 p.m. ET on Thursday, following news that an activist investor was urging the toy maker to make changes to its business strategy.
Alta Fox Capital Management is one of the largest shareholders of Hasbro. It owns about 2.5% of the outstanding shares, worth about $340 million. Like a true activist investor, the firm is using that influence to push for two big changes to Hasbro's business that it believes could lead to a double from today's share price.
Image source: Getty Images.
So what
In a letter to Hasbro, Alta Fox Capital Management explained why it invested in the toy company, but also pointed out the flaws in the company's strategy that are preventing the market from awarding the stock a higher valuation.
Our in-depth analysis has helped us determine that Hasbro possesses exceptional assets, loyal customers, passionate employees and truly special brands. However, our analysis has also led us to conclude that the Company is severely undervalued and a perpetual underperformer due to its ineffective "Brand Blueprint" strategy, flawed corporate structure and consistent misallocation of capital.
Hasbro recently delivered a strong earnings report, with revenue and adjusted earnings per share increasing by 17% and 41%, respectively, over 2020. Yet the stock didn't budge on the news. The stock currently trades at a forward price-to-earnings ratio of 19.4, which is a discount to the S&P 500 index's forward earnings multiple of 22.4.
Now what
Alta Fox is proposing changes to Hasbro's board of directors to better incentivize management to improve its capital allocation, corporate governance, and investor communication. The firm also wants Hasbro to spin off its fastest-growing segment, Wizards of the Coast, which posted revenue growth of 42% last year.
Altogether, Alta Fox believes these moves would put Hasbro on a "clear path to at least $200 per share," representing a double from today's share price.
