Analysts Say Hasbro Is a Buy, While Mattel Is a Sell

An Argus research report indicated that Mattel currently owns the lucrative rights to manufacture and market dolls based on Walt Disney Co. (NYSE: DIS) characters from the movies “Frozen” and “Disney Princess.” However, in September 2014, Disney signed an agreement that will allow one of Mattel’s chief competitors, Hasbro, to develop Disney Princess dolls beginning in 2016.

Hasbro has been a strong performer year to date, with shares up about 36%. Prior to its earnings, Hasbro was close to the $65 mark, now shares are up to $74, which may be in part due to short covering. The company reported its first-quarter financials as $0.21 in earnings per share (EPS) on $713.5 million in revenue, compared to consensus estimates from Zacks of $0.09 in EPS on $668 million.

A couple of analysts got behind Hasbro after this earnings beat:

• Monness Crespi & Hardt reiterated its Buy rating and raised its price target to $82 from $67.
• Piper Jaffray also raised its price target to $79 from $66 when it reiterated its Overweight rating.

Shares of Hasbro were down 0.8% at $73.58 on a 52-week trading range of $48.01 to $74.75. The stock has a consensus analyst price target of $70.25.

Back to Mattel… The company’s sales declined in the first quarter of 2015 for the sixth consecutive quarter, while inventories have continued to increase. Management has worked to reduce inventories and revive sales by improving brand recognition and introducing new products, but has yet to achieve the expected improvement.

Although Mattel will continue to manufacture toys for Disney, the loss of the Disney Princess rights will lower revenues. The loss of these sales also comes at a time of increasing competition from makers of electronic devices.

In mid-April, Mattel reported a first-quarter loss of $0.08 per share, down from earnings of $0.03 per share in same period of the previous year. As a result, Argus lowered its 2015 operating EPS estimate to $1.50 from $1.70 and its 2016 estimate to $1.65 from $1.80. The independent research firm downgraded its 5-year rating for Mattel to a Hold rating from a Buy with a fair value for the company around $24, below the current price level, thus making its near-term rating a Sell.

Looking at how Mattel has been trading on the chart, the stock is down nearly 11% year-to-date and almost 24% from a year ago. Shares of Mattel were down 0.6% at $27.06 on Tuesday afternoon. The stock has a consensus analyst price target of $25.88 and a 52-week trading range of $22.32 to $40.00.

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