Is Mattel a winner in the toy industry?

Mattel, Inc. (MAT) in El Segundo, Calif., is one of the world’s leading manufacturers of children’s toys and entertainment. Its popular products include Barbie, Hot Wheels, American Girl and Polly Pocket. The Company operates through three segments: North America; International; and American Girl. Additionally, it has an ISS Governance QualityScore of 3, indicating relatively low governance risk.

Shares of MAT have gained 16.3% in price over the past six months and slightly since the start of the year to close yesterday’s trading session at $21.95.

However, the stock is down 2.3% in the past month, compared to the benchmark S&P 500’s 6.8% gains over that period.

Here’s what could shape MAT’s performance in the short term:

Outreach efforts

Amid continued global supply chain disruptions, MAT has taken steps to move its supply chain closer to the United States. The company invested nearly $50 million to open a production plant in Mexico last month. This factory is by far MAT’s largest production center, significantly larger than its centers in China, Malaysia and Vietnam. The inauguration of the new mega-factory is part of MAT’s plans to strategically transform and consolidate its manufacturing footprint.

On this subject, the general manager of MAT Latin America, Gabriel Galvan, declared: “Being able to have a product close to your consumer and not having to transport it from Asia, it will be more profitable and more competitive if we take costs into account.

Mixed finance

MAT’s net sales improved 10% year-over-year to $1.79 billion in its fiscal fourth quarter, ended December 31, 2021. Its gross profit was $884 .30 million, up 6% from the same period last year. However, its gross margin fell 210 basis points year-over-year to 49.3%, while its adjusted gross margin fell 220 basis points from the same period last year.

Its operating profit and net profit rose 37% and 79% from the year-ago quarter to $257.50 million and $225.80 million, respectively. Its EPS was $0.64, representing a 73% improvement over the prior year value. Nonetheless, MAT’s cash and cash equivalents balance decreased slightly year-over-year to $731.40 million for the year ended December 31, 2021.

Consensus Rating and Price Target Indicate Upside Potential

Of the 11 Wall Street analysts who rated MAT, eight rated it Buy, while three rated it Hold. The 12-month median price target of $31.95 indicates upside potential of 45.6% from Friday’s closing price of $21.95. Price targets range from a low of $26.00 to a high of $45.00.

POWR ratings reflect uncertainty

MAT has an overall C rating, which is equivalent to Neutral in our proprietary POWR rating system. POWR ratings are calculated by considering 118 separate factors, with each factor weighted to an optimal degree.

MAT has a C rating for stability, momentum, and value. The stock’s relatively high beta of 1.44 is in line with its stability rating. Moreover, it is currently trading slightly below its 50-day and 200-day moving averages of $23.26 and $21.50, respectively, justifying the Momentum rating. Additionally, MAT’s non-GAAP C/E multiple of 15.05 is 22.4% higher than the industry average of 12.30, justifying the Value rating.

Of the 23 stocks in the Entertainment – ​​Toys & Video Games sector, MAT is ranked #8.

Beyond what I said above, check out MAT Ratings for Growth, Sentiment, and Quality here.

Conclusion

MAT’s strategic outreach efforts have been in the works for some time; its Mexico-based mega factory was first offered in 2019. In fact, the company has closed several factories in China and Canada as part of its business transformation. While such strategic realignments should reduce MAT’s transportation costs in the long term, its profit margins are expected to suffer in the coming months due to the immense capital expenditures undertaken in the last quarter. Additionally, recent plant closures may impact its total production capacity to some extent. Thus, we believe investors should wait for MAT’s operations and finances to stabilize before investing in the stock.

How does Mattel, Inc. (MAT) compare to its peers?

Although MAT has a C rating in our proprietary rating system, you might consider looking at industry peers Spin Master Corp. (SNMSF), DoubleDown Interactive Co., Ltd. (DDI) and Electronic Arts Inc. (EA), which have a B (buy) rating.


MAT shares were trading at $22.21 per share on Monday morning, up $0.26 (+1.18%). Year-to-date, the MAT has gained 3.01%, compared to a -6.52% rise in the benchmark S&P 500 over the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the dos and don’ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing stocks. After…

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