Hasbro (HAS) received a downgrade from D.A. Davidson to a "Neutral" rating from "Buy," with the price target lowered to $53 per share from $60. The company recently faced massive layoffs due to, what CEO Chris Cocks said to his staff in a memo as, stronger-than-expected “market headwinds."

D.A. Davidson Senior Analyst Linda Bolton Weiser joins Yahoo Finance to explain the reasoning behind Hasbro's downgrade and the toymaker's business outlook.

"The tone of the company has really changed and I would say that happened around the time that I spoke to them when they announced their headcount reductions around December 10 or so," Weiser explains, "and they really made it sound like the growth prospects for the toy business in 2024 were no growth."

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Editor's note: This article was written by Nicholas Jacobino.

Video Transcript

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- DA Davidson downgrading Hasbro to-- from buy to neutral this week. The move coming after the toy maker cut nearly 20% of its workforce in an industry struggling to reinvent itself post-pandemic. Joining us now is the analyst behind that call, Linda Bolton Weiser, DA Davidson senior analyst.

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Linda, it is good to see you. So you downgrade Hasbro. You go to neutral, your target. And it goes to 53. How come? Just walk us through the argument, Linda, why you decided now was the time to move to the sidelines.

LINDA BOLTON WEISER: Sure. Well, there's really three key reasons. I would say the tone of the company has really changed. And I would say that happened around the time that I spoke to them when they announced their headcount reductions around December 10 or so. And they really made it sound like the growth prospects for the toy business in 2024 were no growth, you know, decline.

And I think that was, to me, a different change in tone. And part of that was the idea that there was a COVID pantry load by consumers of toys and that you're kind of unwinding that. That's a little bit of a new narrative.

And then secondly, I'm concerned that the Street estimates for the first half of 2024 are too high. The growth is just too high, both top-line growth and the profit growth. The operating profit the Street has is over 25% growth for 2024. I think they're going to guide lower than that.

And thirdly, I'm concerned that their cash flow in the next few years, their free cash flow will not be high enough to make a big enough dent in paying down their debt to get their leverage ratio down as fast as they would like. I think that signals potential risks to the dividend. I think there's a risk to a dividend cut here.