Is Hasbro's Turnaround Real? Wizards of the Coast Holds the Key

For a while now, Hasbro Inc HAS has been a company in search of a comeback. The stock has been hammered by shifting consumer tastes, supply chain woes, tariff uncertainties and the difficult transition away from its traditional toy business. A look at the numbers tells the story: the company's three-year revenue growth rate is a dismal -14%. It has been a tough road for long-term shareholders.

However, beneath the surface, a turnaround is beginning to take shape. The company is in the midst of a strategic overhaul, and the early results are actually promising. Fueled by the incredible performance of its Wizards of the Coast segment, Hasbro is showing signs of life.

But this progress has not gone unnoticed. The stock has enjoyed a solid run-up, something like +40% since the low in April, and the valuation no longer reflects the deep pessimism of the past.

The Turnaround Takes Hold

To understand Hasbro today, you have to see it as (mainly) two distinct businesses. The recent Q2 2025 earnings report laid this out in stark detail.

First, you have the legacy Consumer Products segment. This is the traditional toy business, and it is still struggling, with revenue down 16% year-over-year. However, the turnaround plan is working here. Through aggressive cost-cutting and operational improvements, the segment managed to post a small operating profit of $1 million, far away from the losses it was previously delivering. For instance, in the Q2 this segment gained 3.1 pts of operating margin just because of the line COS Savings > Cost Inflation. It is a business that is slow (or may even continue to decline a little bit), but it's being stabilized.

Then you have Wizards of the Coast & Digital Gaming. This segment is not just growing; it is in a strong momentum, to use the same word as Hasbro's presentation. Revenue surged 16% to $522 million, driven by the phenomenal success of its cornerstone franchise, Magic: The Gathering. As CEO Chris Cocks highlighted on the earnings call:

"Wizards of the Coast had a standout quarter. MAGIC: THE GATHERING continues to deliver, growing 23% year-over-year in the second quarter... This isn't just a one-off moment. It's a clear indication of the power of MAGIC'S community, our release cadence, and the resonance of our Universes Beyond strategy."

This segment is a cash machine, posting a 46.3% operating margin in the quarter. The success of licensed sets like Final Fantasy is proving this strong momentum and the high brand power of this segment. This high-margin, high-growth engine is now the primary driver of Hasbro's profitability, and the core pillar for the bullish thesis.

The Risks Haven't Vanished

Despite the positive momentum from Wizards, Hasbro is still a very complex thesis. The company still faces significant risks that could derail its recovery.

The primary risk is, of course, execution, but we must be specific about what this means. For the Consumer Products division, it means successfully managing a complex global supply chain to mitigate tariff impacts, securing prime shelf space with retailers who are delaying holiday orders, and launching new products that must resonate with a fickle consumer base. For Wizards, execution means flawlessly managing a high-stakes for sets like Final Fantasy or Spider-Man, which now carry the weight of a huge portion of company's profitability. A single delayed launch or a poorly received set could have an outsized negative impact. Remember that even after a high increase in Wizards' revenue and a decrease in consumer products revenue, this worst division still accounts for 45% of all Q2 revenue.

Another very important point is that even though Wizards has moats such as its strong consolidation in the card gaming scene with Magic, it may still face worse phases, with new sets performing worse than recent ones or even competition from other card games, i.e., there is also a high degree of uncertainty and it is not possible to consider with high conviction that this revenue growth will continue for many years. Also, while the Wizards segment is a pillar of strength, its hit-driven nature creates a concentration risk. The company's overall health is now highly dependent on the continued success of Magic releases.

There is also the persistent geopolitical and tariff risk. As CFO explained, Hasbro is heavily exposed to China, with approximately 50% of its U.S. toy and game volume originating from the country. While the recent news on this front has been more favorable than feared, it remains a key uncertainty that could impact margins.

The Guru's Activity: May Be A Tactical Trade, Not a Long-Term Conviction

The most telling sign that the margin of safety has compressed comes from the actions of the gurus. In the fourth quarter of 2024, when the outlook was still bleak, value-oriented managers like Joel Greenblatt (Trades, Portfolio) and Jefferies Group (Trades, Portfolio) were adding to their positions, probably betting on a recovery.

However, after the stock enjoyed a small run-up in early 2025 and with a little more uncertain environment, their tune changed. In the first quarter, both Greenblatt and Jefferies Group (Trades, Portfolio) were sellers, with Jefferies closing its position entirely. This could be a signal that the stock is no longer in bargain territory.

Valuation: A Fair Price for a Work in Progress

This brings us to the main problem for me, valuation. To begin with, valuing a company that is undergoing a turnaround is always difficult. In addition, this type of thesis carries a high execution risk, as already mentioned, and therefore, in my view, the margin of safety needs to be wide.

At first glance, the forward price-to-earnings ratio of around 15x seems reasonable, given that there are good parts of the company and better results. However, this may be fine for a stable and growing company, but for a company that is still in the midst of a complex turnaround, with the risks outlined above, 15x does not seem like a bargain, but rather something closer to fair.

Let's outline the following scenario. In its heyday, the company had revenue (LTM) of more than $6 billion, and the peak net income margin was in mid-2017 at 11%, which would give us a net income of just over $650 million. In this recovery scenario, we still see a multiple close to 15x.

Of course, with the momentum of Wizards and other initiatives, the scenario that may materialize in the coming years could be even better. The company has medium-term guidance (2025-2027) to grow revenue at a mid-single digit CAGR, add 50-100 bps of adj. operating margin per year, achieve cost savings of $1 billion, and reduce leverage. If all this occurs, there is still significant value to be unlocked.

But even so, I don't think it's worth it given the valuation in light of the risks related to tariffs, possible shifts in trends that could worsen Wizards' strong momentum, and the like.

Can Margins Outrun A Shrinking Business?

If we analyze the long-term history, Hasbro's revenue per share went from $35 to $29 in about 10 years, but with the margin increasing, this resulted in a flat free cash flow per share and even an EPS that did not decrease that much. But the question remains, can the margin increase continue to offset this revenue loss?

The main point would be the mix shift. The more the company shrinks its dependence on the low-margin consumer products business, while at the same time maintaining strong growth in the high-margin Wizards of the Coast and other licensing segments, the better the result of the equation. Other than that, the goal of achieving $1 billion in cost savings by 2027 is a very important second lever, stabilizing the legacy business.

Alternatively, this strategic pivot towards high margins may also be positioning Hasbro for a different game, such as a potential acquisition, since there are important IPs within the company such as Magic and Dungeons & Dragons. But this should be treated as an optionality, since it is speculative in nature and there is no certainty that it will generate value in the short term.

The Bottom Line

Hasbro is a company at an inflection point, already showing some very positive signs in Q2 and with a solid plan and initiatives that stand out for their ambition to cut costs while maintaining healthy revenue growth over the next few years.

However, Hasbro no longer appears to be a deep-value play, as this run-up, driven by strong execution and a more favorable tariff outlook, has compressed the margin of safety. And even though this path has become much clearer when compared to other quarters, there are still very latent risks for the company that should be considered in the investment decision.