Hasbro Vs. Mattel: In A Tough Retail Environment, Which Toymaker Is Stronger?

Are investors who want exposure to toymakers better off with Mattel, Inc. MAT or Hasbro, Inc. HAS?

The Analyst

B. Riley FBR's Susan Anderson initiated coverage of Mattel's stock with a Neutral rating and $15 price target.

The analyst also initiated coverage of Hasbro's stock with a Buy rating and $108 price target.

Mattel: Going In The Right Direction

Mattel boasts strong and iconic brands, yet at the same time the company is going through multiple changes to better position itself to address the omni retailing world, Anderson said in the initiation note. (See Anderson's track record here.) 

The transition is projected to be "a multiyear process," but Mattel does deserve some credit for "going in the right direction," the analyst said. 

Mattel's recent sales and earnings likely foreshadow what's in store in 2018, the analyst said. Part of this could be attributed to the Toys R Us bankruptcy, as Mattel is slightly more exposed to the retailer than Hasbro — both globally (11 percent of sales versus 9 percent) and in North America (12 percent of sales versus 18 percent).

In addition, Mattel's inventory-to-sales spread stands at 19.4 percent, which makes it more difficult for the toymaker to find a new home for its Toys R Us inventory, Anderson said. 

B. Riley FBR's $15 price target is based on a 19x multiple on the firm's 2019 EPS estimate, which represents a premium to the stock's three-year average multiple of 17x, which Anderson said is justified based on the company's strong brands and turnaround potential.

Hasbro: The Right Focus

Hasbro is "well-positioned" to tackle today's toy market, Anderson said. The company is focusing on demographics, as children are growing out of toys sooner at a time when digital is becoming more important, Anderson said in a separate initiation note.

Hasbro should be able to continue growing its top line at a mid-single-digit rate and grow its bottom line at a high-single-digit rate to low double-digit rate over the next few years, the analyst said. 

The stock has fallen more than 20 percent from its July peak, which represents a "significant buying opportunity," as Hasbro is a high-quality stock, Anderson said. In the near-term, the stock may get a catalyst from strong "Star Wars" toy sales, which are off to a good start based on the analyst's checks.

Related Link:

What Toys R Us Store Closures Could Mean For Mattel, Hasbro

Mattel's Bad Holiday Guidance Plunges Credit Rating To 'Junk' 

Photo courtesy of Hasbro.