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We maintain our Neutral recommendation on Hasbro Inc. (HAS - Analyst Report) based on the company’s strong presence in digital gaming, rapid international growth, and its strategic partnerships. However, these positives are partly offset by weak consumer spending environment in the U.S and Europe.

Hasbro’s long-term strategy focuses on extending its brands further into the digital world, a market that is expected to grow significantly in the future. The company continues to enter into agreements with mobile gaming companies and digital interactive entertainment businesses that give it an opportunity to establish its presence in the digital gaming/casual entertainment category.

Moreover, the company continues to enter into or leverage existing strategic licenses that complement its brands. It is trying to build brand experience and drive product-related revenues by increasing the visibility of its brands through motion pictures and television programming. We believe that greater focus on entertainment backed products should bode well for the company.

Additionally, Hasbro’s international segment is growing at a rapid pace. Since the last few years, Hasbro has been expanding in emerging markets like China, Brazil, Russia, Korea, Romania, Czech Republic, Peru and Colombia. In the long run, management expects its international revenues to be greater than other domestic toy makers.

On the profitability front, Hasbro is advancing steadily through efficient sales leverage. Although revenues have been sluggish for the last few quarters, cost containment efforts to cope with the difficult operating environment have ensured decent profitability. As a result of these efforts, the company’s third-quarter 2013 adjusted earnings per share and revenues beat the Zacks Consensus Estimate and also grew year over year.

Despite these positives, the company's wide exposure to the European region remains a cause of concern. The fact is validated by the continued deceleration in sales growth in Europe over the last couple of quarters. Moreover, consumer spending uncertainty still lingers amid sluggish economic growth in the U.S. Customers are focused on reducing their non-essential purchases. Meanwhile, the Boys products segment, which was once the chief growth driver, continues to be sluggish in recent times, which is also a concern.

Other Stocks to Consider

The company presently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the same sector include Activision Blizzard Inc. (ATVI - Snapshot Report), Bally Technologies, Inc. (BYI - Snapshot Report) and DreamWorks Animation SKG Inc. (DWA - Analyst Report). While Activision Blizzard and Bally Technologies carry a Zacks Rank #1 (Strong Buy), DreamWorks Animation holds a Zacks Rank #2 (Buy).

 

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