Toy manufacturer Mattel, Inc.’s (MAT) shares have rallied 128.5% over the past year, driven by a major upswing in its topline performance and its diverse product offerings.
With children continuing to spend more time at home in response to the COVID-19 pandemic, the company’s premium brands, such as Hot Wheels and Barbie, are expected to benefit from higher demand.
So far this year, the stock has gained 17.3% to close yesterday’s trading session at $20.47. As MAT continues to strategically invest in brands that are likely to retain their popularity among children, we think it is well positioned to grow its sales further in the near term. In fact, its new “Optimizing for Growth” initiative for optimizing operations, reducing cost, and driving greater productivity should enable it to drive growth and substantially increase shareholder value.
Here is what we think could shape MAT’s performance in the near term:
Strong Growth Prospects
This month, MAT unveiled the Matchbox Tesla Roadster, the company’s first die-cast vehicle made from recycled materials and certified as CarbonNeutral. The company also recently announced its plans to create Rock ‘Em Sock ‘Em Robots, a live-action motion picture, with Universal Pictures and Vin Diesel’s One Race Films production company. Given the increased focus on new content and innovative product launches, we think toymaker MAT is poised to advance further and to grow its young user base significantly.
Favorable Analyst Estimates
Analysts expect MAT’s EPS to increase 39.3% year-over-year in the current quarter ended March 2021. The company’s earnings are estimated to rise 65.4% from the same period last year in the next quarter, ending June 30, 2021. Also, its EPS is expected to rise 42.6% year-over-year to $0.77 in fiscal 2021.
An $834.15 consensus revenue estimate for the next quarter, ending June 30, 2021, represents a 22.9% improvement from the same period last year. The Street expects MAT’s revenues to increase 4.3% in fiscal 2022.
Despite challenging market conditions, MAT’s fourth quarter performance exceeded expectations. Its net sales in its North America segment rose 13% year-over-year, while net sales in its international segment increased 7% year-over-year in the fourth quarter ended December 31, 2020. MAT’s operating income grew 185% from its year-ago value to $192.7 million, while its gross profit increased 17% year-over-year to $835.2 million.
Moreover, MAT has an impressive earnings surprise history. It beat the consensus EPS estimates in three of the trailing four quarters.
Consensus Rating and Price Target Indicate Potential Upside
Of the 13 Wall Street analysts that rated the stock, four rated it a Strong Buy and five rated it Buy. The stock has an average broker rating of 1.57, which indicates favorable analyst sentiment. Currently trading at $20.47, analysts expect the stock to hit $21.32 in the near term, indicating a potential upside of 4.2%.
POWR Ratings Indicate Solid Prospects
MAT has an overall B rating , which translates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. MAT has a Momentum Grade of B, given the company’s impressive price returns over the past year.
Also, in terms of Quality Grade, MAT has a B. Its trailing-12-month gross profit margin of 49.1% is 47.5% higher than the industry average of 33.3%.
Beyond what we’ve stated above, one can check out additional ratings for Stability, Value, Growth, and Sentiment here.
The stock is ranked #6 of 26 stocks in the C-rated Entertainment – Toys & Video Games industry.
If you’re looking for other top-rated stocks in the same industry, with an Overall POWR Rating of A or B, you can access them here.
MAT witnessed stellar growth in the fourth quarter, with a significant increase in profitability and double-digit gains across its product portfolio. Given the higher demand for its premium brands and strong product line-up, the company is well-positioned to maintain its momentum.
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MAT shares were trading at $20.86 per share on Wednesday morning, up $0.39 (+1.91%). Year-to-date, MAT has gained 19.54%, versus a 10.91% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
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