Insiders And Institutions Buy Into Hasbro Growth Story
Hasbro (NASDAQ: HAS) gave the market some good news on April 19th when it reported earnings. The results were mixed but came with positive guidance and an outlook for growth that got the market’s attention. The company also resumed its buyback program which is a move that has far-reaching repercussions. Hasbro is not only a stock repurchaser but also a dividend-grower that has not issued a distribution increase since before the pandemic began. Looking at the situation from the perspective that it just resumed buybacks it makes sense to think a dividend increase could be on the way as well.
That might be why CEO Christian P. Cocks bought some of the shares. He bought 10,202 shares just 2 days after the earnings report was released bringing his total holdings up to over 65,950 shares worth about $5.8 million trading at $88. That’s a drop in the bucket in relation to the total float but still a telling sign, especially since he took over the company just two months ago. In total, the insiders and large holders own about 8.4% of the stock. On the institutional end, the institutions own about 81% of the stock making it a tightly held issue. They’ve been net buyers the last 4 quarters picking up about 8.5% of the current market cap in that time. Based on the results, the outlook, the buyback, and the dividend we think that trend will continue.
Hasbro Has Mixed Quarter, Shares Bottom
Hasbro had a mixed quarter in which revenue of $1.16 billion came in as expected. The revenue was driven in large part by strength in the tabletop games subsidiary Wizards of the Coast and up 4.5% from last year. The company says supply chain hurdles and inflation cut into the results and that can be seen on the bottom line. The $0.57 in adjusted earnings is down YOY and missed by $0.07 but there is good news. Execs say they have already enforced price hikes that will show up in the results this quarter. That’s why they were able to raise guidance for both revenue and margin. Looking forward, the company says it should be able to maintain revenue growth in the low-single-digit range with margin expansion at both the gross and operating levels.
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The best news in the report is that balance sheet improvement is ongoing. The company says it is on track to achieve a 2.0X to 2.5X leverage ratio by next year while paying its 3.2% dividend and buying back $75 to $150 million in shares. The repurchase program is worth 6% to 12% of the market cap and is expected to come over the next 12 months. Assuming the company can continue to make gains on its initiatives and successfully pass through its pricing increases we see a chance not only for a dividend increase but for share repurchases to increase as well.
The Analysts Drive Volatility In Hasbro Price Action
The analysts are mixed in regards to Hasbro rating it a weak Buy verging on Hold. There have been two commentaries since the Q1 results were released and they each came with a price target change, one up and one down, the former is higher than the consensus estimate and the latter lower. The takeaway is the consensus is $109 or about 25% above the current price action and relatively steady over the past 30 days. Turning to the chart, the stock looks like it bottomed and is in a reversal that could take it up to the $97.50 level. The risk is resistance at the $90 level, if that can not be surpassed Hasbro could become trapped in a range until the news changes.
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