Hasbro, Inc. (HAS), along with other major toy companies in the sector, will see an impact from the release of new Xbox and Playstation consoles while already battling with the tablet and smartphone market, as the toy retail space faces a weak season ahead, says Gerrick Johnson, Analyst at BMO Capital Markets Corp.
“More than video games, tablets and smartphones and their apps have had an impact on this market. We are living in the era of free apps, so the consumption of that product for a child is pretty inexpensive,” Johnson said. “We also expect to see some impact when the new Xbox and Playstation consoles come out late next month. If you ask an 8-year-old boy if he would rather play a physical game or the new video game, he’s likely going to pick the video game.”
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With few hot trends and no must-have toy coming from the major toy companies, Johnson is not recommending any stock in the sector, and has a “sell” on Hasbro specifically, because he believes it is overvalued. In order for toy retail to recover, Johnson is looking for an improvement in the economy as well as better products on the line.
“It’s all cyclical. So what needs to change is, one, the economy needs to do better so people feel more confident about spending a little bit more when they go to a retailer or a shop for the holiday season. Two, you need to see better products out there to attract the attention of the consumer, so more innovative products. There are some innovative things, but they come from the private companies, the smaller companies,” Johnson said. “Most of my stocks are neutral. I have a ‘sell’ on Hasbro because I believe they are overvalued…overall, the space just frankly isn’t that appealing right now.”
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