BMO Plays Nice With Mattel, Puts Hasbro On The Shelf

Gerrick Johnson of BMO Capital Markets believes U.S. consumer figures are "still strong" and providing a tailwind to the often-overlooked leisure-related industries.

Johnson stated that heading into earnings season, the more discretionary-related leisure stocks in his coverage have more upside potential than the "more defensive" toy and video game segments.

Johnson continued that Brunswick Corporation (NYSE: BC), a maker of marine engines, boats and active recreation products, could outperform the Street's expectations. Meanwhile, sentiment surrounding Harley-Davidson Inc (NYSE: HOG) is "so low" that merely communicating to investors "less worse news" could send shares higher.

Related Link: Project Bloks: How Google Intends To Teach Children To Code

On the other hand, Johnson stated that the toy segment is "still performing well" and among the group he likes Mattel, Inc. (NASDAQ: MAT) heading into earnings season. However, the analyst did caution that the toy sector's valuation is trading "on the high side."

Johnson also recommended investors avoid Hasbro, Inc. (NASDAQ: HAS), as the company's key brands such as "Star Wars" and "My Little Pony" may have underperformed in the quarter.

Johnson also stated that video game stocks are trading at a high valuation at 19x forward earnings per share. The group could trade higher but execution "needs to be solid," numbers need to be "strong" and full-year guidance "needs to be lifted." In addition, the recent success of the Pokémon GO mobile game "could sap some engagement" away from console and PC games, which could impact their outlook.

Did you like this article? Could it have been improved? Please email feedback@benzinga.com to let us know!