Mattel Inc.
(
MAT
) reported solid third quarter results last month that included a
positive earnings surprise. Afterwards, shares reached a 52-week
high of $37.96 on October 19, while Zacks Consensus Estimates for
fiscal years 2012 and 2013 moved higher.
In addition, this Zacks #2 Rank (Buy) toy manufacturer pays a
dividend that yields 3.4% annually, making it attractive for
investors seeking both growth and income.
Fabulous Third Quarter
On October 16, Mattel reported third quarter earnings of $1.04 per
share, outpacing the Zacks Consensus Estimate by 4.0% and the
year-ago earnings by 21.0%.
Net sales grew 4% year over year to $2,077.8 million, beating the
Zacks Consensus Estimate of $2,076.0 million. Net sales included an
unfavorable foreign currency impact of 3 percentage points. U.S.
gross sales increased 6% year over year while international gross
sales nudged up 2%.
Gross sales for the Mattel Girls & Boys Brands business unit
expanded 3% year over year to $1,371.1 million. Sales for Other
Girls Brands shot up 57%, driven by Monster High. Fisher-Price
Brands sales climbed 6% to $790.4 million, while the American Girl
line leapt 16% to $102.0 million.
Gross margin expanded 590 basis points (bps) year over year to
53.7% while operating margin improved 360 bps to 23.5%.
Earnings Momentum Improving
Over the last 30 days, the Zacks Consensus Estimate for 2012
increased 3% to $2.53 per share, based on upward revisions from 8
of 10 estimates. This implies year-over-year growth of 16.0%.
For 2013, the Zacks Consensus Estimate is $2.79 per share, marking
an upswing of 2%, thanks to 8 upward revisions out of 11 estimates.
The current estimate suggests year-over-year growth of 10.4%.
Strong Dividend
Mattel pays a solid dividend. Since 2002, the company has increased
its dividend 8 times and continued to pay even during the
recession. The latest hike of 35% was announced in January 2012.
Currently, the company pays a quarterly dividend of 31 cents per
share, affirming a yield of 3.4%. The average five-year yield
stands at 3.7%.
Reasonable Valuation
Considering the company's growth prospects, its valuation looks
reasonable. Mattel is currently trading at a forward P/E of 14.6X,
a premium of 6.5% to the peer group average of 13.7X. In addition
to P/E, the stock is also trading at a forward P/B of 4.33x and a
P/S of 1.99x, compared with the peer group's P/B of 1.48x and P/S
of 1.25x.
Moreover, the company has a 1-year return on equity (ROE) of 31.8%,
substantially higher than its peer group average of 2.0%. The
company also has an attractive long-term estimated earnings per
share growth rate of 9.4%.
Chart Shows Potential
The price and consensus chart demonstrates that the earnings
estimate lines for 2012, 2013 and 2014 are hovering above the stock
price, indicating that Mattel is undervalued. Currently, the stock
price is up 32.7% year to date, significantly higher than the
S&P 500's return of 12.3%.
Mattel designs, manufactures, and markets a wide variety of family
products worldwide through both sales to retailers and consumers.
The company generates the largest part of its revenue from the
Mattel Girls & Boys Brands segment. Other segments include
Fisher-Price Brands and American Girl Brands. With a market
capitalization of $12.0 billion, Mattel primarily competes with
JAKKS Pacific, Inc. (
JAKK
) and Hasbro Inc. (
HAS
).
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