We reaffirm our Neutral recommendation on
JAKKS Pacific Inc.
) following appraisal of its fourth quarter 2012 results. Despite
sluggish results in the fourth quarter, Jakks Pacific's long-term
potential keeps us on the sidelines.
Why the Reiteration?
JAKKS Pacific's adjusted loss in the fourth quarter of 2012 was
substantially wider than the Zacks Consensus Estimate and the
year-ago level. Revenues also fell short of the Zacks Consensus
Estimate as well as year-ago numbers. Lower domestic product
sales amid a difficult retail environment led to the top- and
bottom-line miss and year-over-year decline.
Several of its key products lacked demand in the fourth quarter
of 2012. Basically, JAKKS Pacific has become a victim of the
change in children's play pattern in recent years battling a
broad array of alternative devices including MP3 players, tablet,
smartphones and other devices.
Moreover, JAKKS expects the first quarter of 2013 to be weaker
year over year due to incremental expenses related to the launch
of the DreamPlay product line and the Maui Toys acquisition.
Management expects the DreamPlay line to contribute marginally to
Despite these factors, the company's long-term potential prevents
us from being bearish on the stock. Management remains optimistic
on the DreamPlay toy line, which is set to hit the market in
2013. The line should benefit the company in the long run with
full product and content launches into 2014 and 2015.
JAKKS Pacific has also undertaken some restructuring activities
and is consolidating its operations to lower occupancy costs,
increase efficiencies and profitability in the near term.
Additionally, the company is on an acquisition spree. Jakks
Pacific's latest acquisition of Maui, a manufacturer and
distributor of spring and summer activity toys, is expected to be
accretive to 2013 earnings. Hence, at the current level, we
prefer a wait and see approach.
Other Stocks to Consider
Some players in the leisure and recreational products industry,
which look attractive at current levels include
Smith & Wesson Holding Corp
Sturm, Ruger & Co. Inc.
) carrying a Zacks Rank #1 (Strong Buy) and
) carrying a Zacks Rank #2 (Buy).
BRUNSWICK CORP (BC): Free Stock Analysis
JAKKS PACIFIC (JAKK): Free Stock Analysis
STURM RUGER&CO (RGR): Free Stock Analysis
SMITH & WESSON (SWHC): Free Stock Analysis
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