Hasbro (HAS) stock soared 3.2% after UBS analyst Arpine Kocharyan upgraded it to “buy” from “neutral.” However, Kocharyan maintained his earlier target price of $117 on Hasbro stock. This reflects an 18% return over next year.
Why did UBS upgrade Hasbro stock?
Kocharyan is optimistic about Hasbro’s long-term growth potential. Kocharyan anticipates substantial revenue and costs synergies from Entertainment One acquisition to boost Hasbro’s earnings in the long run. He opines that investors do not appreciate Hasbro’s acquisition effort to sustain long-term growth.
Notably, in August 2019, Hasbro announced buying Entertainment One in an all-cash transaction worth $4 billion. The UK-based Entertainment One is well-known for its “Peppa Pig” and “PJ Masks” content. Hasbro plans to complete the deal in the fourth quarter of 2019.
According to a MarketWatch report, Kocharyan expects the transaction to be 13% accretive to 2021 earnings and 18% to 2022 earnings. The analyst said, “After a weak Q3 and a meaningful reset in numbers, we see more than 20% upside.” Further, he said the upside would be “driven by better-than-expected revenue and cost synergies from eOne and gaming portfolio momentum.”
Additionally, Kocharyan thinks that Hasbro stock is getting a boost from momentum in its gaming portfolio. The company is also getting strong sales in dolls after Disney’s (DIS) Frozen II release last Friday. However, the analyst views are not positive. He thinks that Hasbro stock is in for a “lackluster holiday season” and “further tariff disruption,” per the MarketWatch report.
Not all analysts are bullish
Kocharyan’s rating upgrade on Hasbro stock is surprising. This is because several other analysts have trimmed their target prices in recent months. Most recently, on October 28, Citigroup cut its target price by 18% to $117. Additionally, KeyBanc and Stifel lowered their target prices on Hasbro stock by 19% and 7%, respectively.
These research firms trimmed their target prices after Hasbro reported lower-than-expected third-quarter results. Also, the company gave a dismal fourth-quarter outlook. The company disclosed that import tariffs on Chinese products hurt its overall third-quarter results. Notably, China makes up nearly 70% of Hasbro’s worldwide production.
Hasbro forecasts that the tariff-related business disruption will keep hurting its top- and bottom-line results in the fourth quarter. During its third-quarter earnings release, Hasbro said that the US-China tariff war threatens its holiday sales. The company said that several retailers, including Target (TGT) and Walmart (WMT), canceled or changed their fourth-quarter orders.
Since its third-quarter results on October 22, Hasbro stock lost 17.5% of its market value. Before its last quarterly results, the stock’s year-to-date gain was nearly 48%. This has now eroded to 22%.