DA Davidson analyst Linda Bolton Weiser downgraded the shares of Hasbro Inc
The analyst points to the fact that Hasbro is now talking about the toy industry undergoing a post-COVID correction and cites CEO Chris Cocks reportedly predicting the headwinds faced in 2023 are likely to persist into 2024.
The analyst notes that pressures on the consumer and on its business specifically will focus management on fixing the cost structure in 2024, with the expectation that the industry will return to its historical growth over time.
With this in mind, the analyst lowers the toy segment sales estimate for FY24 to +1% Y/Y from +3% and the EPS estimate to $3.40 from $3.60.
The analyst thinks the consensus operating profit estimate of 29% for FY24 looks too high, with several expected profit tailwinds and headwinds in the year. The analyst models an operating profit outlook of +12% to $755 million in FY24.
According to the analyst's model, 2023 could be the second year that free cash flow (FCF) does not cover cash dividends.
The analyst estimates FY23 debt-to-EBITDA of 3.8x versus 3.4x in 2022. Even with projected FCF of $402 million (+53% Y/Y) in FY24 and $467 million (+16%) in FY25 and solid EBITDA growth of 8%-10%, the analyst estimates debt-to-EBITDA declines of a modest 3.4x in FY24 and 3.0x in FY25, falling short of the targeted ratio of 2.5x.
Rather than use more than 80% of its FCF in the next two years for dividends, the analyst notes HAS could cut its dividend in early-FY24 in order to achieve its 2.5x leverage target before FY26.
Price Action: HAS shares are trading lower by 0.36% at $50.88 on the last check Tuesday.
