Hasbro ($HAS) isn’t playing around after its earnings release

Hasbro today is surprising investors by crushing its earnings report for Q2, with earnings per share of $0.48 a share (beating estimates by $0.18 a share), and beating earnings estimates by more than $66 million. Revenue is still down 7% year over year, but when you consider that one of the major toy retailers (looking at you Toy’s R Us) closed, a jump in estimated revenue is a good thing.

The strength of Hasbro’s brand portfolio

Hasbro is home to some of the most ubiquitous household names, such as NERF, Monopoly, Mr. Potato Head, Play-Doh, and Transformers, kids from all generations have heard of Hasbro products. Also, it’s worth noting, Hasbro also holds several major licenses from other trademark owners, such as Disney and Marvel. This gives Hasbro a distinct advantage over other toy and game manufacturing companies.

Looking at Hasbro earnings highlights

Taking a peek under the hood, a few takeaways emerge:

  • USA and Canada revenue is down 7% to $459.3 million
  • International revenue fell 11%
  • Asia Pacific growth skyrocketed, lifting up 17% for the quarter
  • Entertainment and licensing revenue also was a bright spot, jumping 26%
  • Franchise brand revenue slipped 8%
  • Partner brand revenue also lost 10%
  • The company also is actively buying back shares, purchasing 820,343 shares from investors, costing the company $74.1 million

How you make money with Hasbro stock

Looking at $HAS, you have to take into account the several areas that are seeing decline, and seeing declines in a BIG way. Taking this stock as a bit overbought, and analyzing it with a 5 YR EBITDA exit, you only get a 4% upside to its 7/20/18 close of $93.93 share price. That’s a lot of risk for only a 2% dividend. Taking a look at a 5 YR Discounted Cash Flow model, we see even bigger issues, as growth puts it at a sub-$70 share price.

Look to short Hasbro stock as revenues have a chance of continuing to decline across segments, or play options on this stock. Taking a Long Put position in the stock with that $70 price target in mind could net you 195% returns if the stock hits $72 by December 20th, 2018. Buy 18 JAN 2019 $72 PUT at a price of $2.14 per option, and 5 contracts, giving you an entry price of $1,070, and an exit position profit of $2,090 if the stock goes to $72.

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