Hasbro, Inc. (HAS) is trading lower by 2% in Monday's pre-market despite beating top and bottom line Q3 2020 estimates. The G.I. Joe creator posted earnings per share (EPS) of $1.88 for the quarter while revenue rose 12.8% year over year to $1.78 billion. The sell-the-news reaction made sense because the stock rose more than 10% last week, in sympathy with a blowout quarter at Mattel, Inc. (MAT), underpinned by surging sales of Monopoly, Scrabble, and other traditional games.
- Mattel and Hasbro beat top- and bottom-line third quarter estimates due to the beneficial impact of COVID-19.
- Mattel stock may have completed a generational bottom in the single digits.
- Hasbro stock is selling off despite the bullish report but rallied more than 10% into the release.
The toy and game makers are unexpected beneficiaries of the COVID-19 pandemic, with social distancing requirements forcing millions of families to spend more time at home with the kids. Quarantined families have driven surging sales of video games, but many analysts failed to predict the impact on traditional board games and toys now being scooped up in large quantities to keep the kids occupied between online classes.
Davidson upgraded Mattel stock after the earnings report, but Wall Street consensus remains at a "Moderate Buy" based upon four "Buy" and three "Hold" recommendations. Hasbro's long-term outlook is stronger according to analysts, with a "Strong Buy" rating based upon seven "Buy" and just one "Hold" recommendation. Both stocks are set to open Monday's session below their median price targets, suggesting additional upside potential into the holiday season.
A news trader is a trader or investor who makes decisions based on news announcements. Breaking news, economic reports, and other reported events can have a short-lived effect on the price action of stocks, bonds, and other securities. News traders try to profit by taking advantage of market sentiment leading up to the release of important news and/or trading the market's response to the news after the fact.
Hasbro Monthly Chart (1999 – 2020)
The stock cleared multi-decade resistance in the $30s in 2013, entering an uptrend that topped out at $116.20 in the third quarter of 2017. It sold off into April 2018, finding support at the 50-month exponential moving average (EMA), and tested that level successfully at year end. A steady recovery wave reached the prior high in August 2019, yielding a quick rally to an all-time high near $127, followed by a decline that failed the breakout in October.
Price action into February 2020 completed a large-scale double top, ahead of a breakdown that ended at a seven-year low in the $40s in March. The bounce into the fourth quarter pierced resistance at the 50-month EMA last week, reestablishing double top support near $80. This level should now act as a trading floor on pullbacks, in turn raising the odds that the uptick will eventually reach the prior peaks in the triple digits.
Mattel Monthly Chart (1998 – 2020)
A multi-year uptrend topped out at $46.56 in 1998, marking a high that wasn't challenged for the next 15 years, ahead of a deep slide that bottomed out in the single digits in 2000. A mid-decade recovery wave recouped about half those losses before stalling in 2007, giving way to a selloff that found support within 1.5 points of the prior low in 2009. Committed buyers then took control, generating a steady uptick that reached the prior high in 2013.
The stock turned tail once again, reinforcing resistance in the upper $40s in a brutal downtrend that eased at the 2000 and 2009 lows in the single digits in 2018. It tested that level successfully in 2019 and again in the first quarter of 2020, establishing long-term support ahead of a modest bounce that has now broken a three-year trendline of lower highs. However, 50-month EMA resistance at $16 and the broken 2015 low near $20 should limit gains into 2021.
A double top is an extremely bearish technical reversal pattern that forms after an asset reaches a high price two consecutive times with a moderate decline between the two highs. It is confirmed once the asset's price falls below a support level equal to the low between the two prior highs.
The Bottom Line
Hasbro and Mattel have recorded excellent third quarter 2020 profits and revenue, underpinned by COVID-19 tailwinds.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.