Don't Toy Around With Hasbro, Mattel Stock

I remember it well. An oldie, but a goodie. I am thinking of the old Loony Tunes episode where Bugs Bunny throws a trick pitch, and the batter swings three times, twisting himself into a knot as the ball moves around, thus striking out instantly. Enter Hasbro (HAS) Q3 earnings. Not only did EPS performance fall short of consensus view by 30 cents, revenue experienced a 12.3% year over year decline, and also missed projections. Revenue separated by region does not make the numbers easier to look at. The U.S. and Canada at -7%, significantly out-performed the International segment at -24%. You read that right, btw. Operating profit margin is also in decline, falling slightly to 20% from 20.1%.

To be honest, there is a significant positive. The firm announced that it had repurchased $80M worth of it's own stock at an average price of $99.14. You know what they say... "if you liked it there, then you'll love it.... "

I do have some balance sheet concerns. Now, cash and cash equivalents saw a precipitous 27% decline over the past 12 months. In fact, Accounts receivable declined, Inventories declined, Property & Equipment declined. Yet, Total Assets increased in value thanks to healthy growth of 34.8% in what is described as "Other Assets". Gee whiz.

The onus for lost revenue here does to a large degree fall upon the decline of the Toys R Us chain. The stock is down close to 6% this morning. Mattel (MAT)  is already considered a much less well positioned firm than Hasbro. Hasbro acknowledged this morning, a larger impact then previously expected from the failure of Toys R Us, and that the firm was trying to work through it's excess inventories. Is there any reason at all to expect better results from Hasbro's competitor when they report this Thursday evening? The charts are not similar. Hasbro was in good shape until about a month ago.

My thoughts are that one might want to stay away from toys in general for now. That said, if there is opportunity for small capture, I believe that Mattel has possibly been set up by the pressure currently on Hasbro. Mattel is still a debt laden firm with negative operating cash flow, which is probably why we have not seen a lot of overture in their direction.

One quickly sees how ugly this chart gets once the Fibonacci model broke. The Pitchfork suggest that the name could go as low as $12. I had drawn up a trade for you. I just deleted the whole thing. Why? Because I would not make the trade myself, so why would I force feed you a bunch of malarkey. A limited trade with an expiration date is fine for an experienced trader. I could not tell a novice to get involved here.

Trade Idea

Take a walk. Much better fish in the sea.

At the time of publication, Stephen Guilfoyle had no position in the securities mentioned.

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