Bank of America says Hasbro could fall 34% due to company ruining 'Magic: The Gathering' card game

Published Mon, Nov 14 20229:03 AM ESTUpdated Mon, Nov 14 20229:50 AM EST

Hasbro is trying to squeeze extra money out of "Magic: The Gathering" fans in the short term, Bank of America said. That could hurt the long-term business. Analyst Jason Haas downgraded the toy stock to underperform from buy as recent changes to the "Magic" cards brand amount to Hasbro "killing its golden goose." The analyst also slashed his price target on the stock to $42 from $73. The new target implies downside of 33.8% from Friday's close. "The primary concern is that Hasbro has been overproducing Magic cards which has propped up Hasbro's recent results but is destroying the long-term value of the brand," he said in a note to clients. "Magic: The Gathering" is a trading card business that accounts for about 15% of Hasbro's revenue and 35% of EBITDA after sales doubled during the pandemic due to financial stimulus. The toy company has tried to capitalize on that demand by upping the number of new releases and production volumes. But Haas said several players are getting increasingly turned off to new releases amid unwelcome changes from the company. He said the company is increasing releases for short-term financial gain with little care over how the brand will suffer longer term. Players now feel like they can't keep up with new releases and are instead playing a different version of the card game where older cards can be used, he said. Seven of the last eight releases have declined in value by Bank of America's count. National retailers have cut the brand or are increasingly focused on moving old inventory, according to a Bank of America check of stores. That comes as retailers turn to promotions for a wide range of products to try to move a glut of inventory as consumers roll back spending on goods coming out of the pandemic. Haas also said he is "concerned" about the company's decision to release a 30th anniversary set that includes four booster packs for $999. He said that is "excessively" high compared to a normal set pack's $5 price. Reprints can hurt the secondary-sale market because the packs include cards from the "Reserved List," which is a group of cards Hasbro previously promised to never reprint. Some have argued it's not a true reprint since the anniversary cards cannot be used in tournaments, while others say it doesn't matter because their existence will still drive down scarcity and, by extension, value. "This set has devalued many high-value cards, and collectors are concerned that Wizards will reprint more," he said. Businesses and collectors would sometimes purposefully hold packs to sell later at higher price as demand outpaced supply, he said, but that system is now collapsing due to production increases and the unexpected reprints. The aggregate price of Reserved List cards peaked in mid-2021 at more than $250,000, but is now down to around $150,000. Haas said the changing secondary market could push card collectors to "Pokémon," "Yu-Gi-Oh!" and "Flesh and Blood" instead. He said Hasbro could improve its outlook if it has a better slate of releases next year. The stock dipped 6.2% in the premarket. It's down 37.7% this year. Hasbro didn't immediately respond to CNBC's request for comment. — CNBC's Michael Bloom contributed to this report.