Magic: The Gathering is a victim of its own success and could weigh on Hasbro stock, Bank of America says

• Hasbro stock plunged 16% after it reported third-quarter earnings that missed analyst estimates.
• The toy company also lowered its revenue guidance, suggesting a weak holiday quarter ahead.
• Bank of America downgraded Hasbro to "Neutral" and said its Magic: The Gathering franchise is a victim of its own success.

Hasbro stock plunged this week after the company reported third-quarter earnings results that missed analyst's profit and revenue estimates.

Strength in the company's Magic: The Gathering franchise was not enough to stem a decline in its toy business. The company also lowered its fourth-quarter sales outlook, suggesting that the upcoming holiday season will be weaker than expected.

Bank of America analyst Jason Haas highlighted in a note from the bank on Friday that Hasbro's Wizards of the Coast division, which includes the Magic: The Gathering and Dungeons & Dragons franchises, saw solid revenue growth of 38% year-over-year, well ahead consensus estimates of 26% growth. That growth was in-part driven by the recent release of a Lord of the Rings branded set for Magic: The Gathering.

But Hasbro didn't raise its sales guidance for the division, as Haas had expected.

And the consistent strength seen in the Wizards of the Coast unit could be a double edged sword for Hasbro as it is forced to lap high growth comparisons over the next year.

"We're impressed by the very strong Wizards of the Coast results this year which meaningfully exceeded our initial expectations but now set up for a hard compare as Hasbro needs to lap Lord of the Rings and Baldur's Gate 3," Haas said.

The company said it expects its fiscal 2023 revenue to decline 13%-15%, compared to previous expectations of just a 3%-6% sales decline.

Hasbro stock is down 16% since it reported its earnings results on Thursday, and is down 37% since its early-September high.

"We remain bullish on [Hasbro President] Tim Kilpin's ability to turn around Hasbro's toy business but recent commentary suggests this may happen more in 2025," Haas wrote, highlighting that the company could be losing share of retail shelf space as stores clean up their inventory.

Bank of America downgraded Hasbro to "Neutral" and slashed its price target from $90 to $53.