Top Stories
Top Stories

Toys'R'Us bankruptcy isn't 'game over' for Hasbro: Analyst

Key Points
  • Barclays' Analyst: Hasbro's Toys'R'Us selloff is overdone
  • The firm sees 18% upside from current levels
  • Despite recent underperformance, Hasbro shares are still up 20% this year

Shares of toy maker Hasbro have been under pressure this week after giving cautious fourth-quarter guidance, but one analyst thinks the recent selloff is an opportunity to buy.

Barclays' Felicia Hendrix raised her rating on the stock to "overweight", after having an "equal weight" rating since February 2015, but trimmed her price target to $110 from $111.

"We have believed for some time now that Hasbro was a well-run company with a strong portfolio of brands; however, valuation has kept us on the sidelines," Hendrix wrote in a note published Tuesday morning. "Following yesterday's selloff, we believe the shares now reflect an attractive entry point relative to our $110 price target."

Hasbro currently carries a slight discount to the broader market – trading at 17.9x next year's earnings, compared to 18.3x for the S&P 500, as of Monday's close.

Hendrix believes the stock can jump another 18 percent, despite rising nearly 20 percent year to date. She thinks the company's versatile management team and stable entertainment pipeline including: 'Star Wars', Marvel & 'Frozen 2' merchandise will be catalysts for a rally.

In spite of Q3 earnings on that beat Wall Street's expectations, Hasbro shared sold off dramatically Monday after cautious guidance tied directly to the bankruptcy of Toys'R'Us – one of its major customers.

That guidance pushed the stock down more than 8.5 percent – the worst daily loss for Hasbro since releasing earnings July 24th.

Shoppers watching the ferris wheel at the Toys R Us store in New York City.
Scott Mlyn | CNBC

Toys'R'Us filed for Chapter 11 bankruptcy protection on September 18th to help relieve the struggling retailer of nearly $4.9 billion in debt left over from its 2005 acquisition by Bain Capital Partners, KKR and Vornado Realty Trust.

"We think Hasbro is well positioned to transition Toys'R'Us inventory to stronger channels despite the uncertainty Toys'R'Us adds for next year," Hendrix writes. "We believe Hasbro's products are in high demand and expect the company will increase its shipments to Wal-Mart, Amazon and Target as well as other retailers."

Hasbro CEO Brian Goldner told "Mad Money" host Jim Cramer on Monday that Hasbro still plans to sell its products to Toys'R'Us in the fourth quarter, despite the bankruptcy, and has expanded its end markets to avoid similar situations in the future.

"Toys R Us has been a great partner for us and has grown, but we've also grown our retail footprint," Goldner said. "We're making new and differentiated product that goes to a bigger retail footprint around the world, to value stores and dollar stores, to mass retail and, of course, to omni-channel and online."