Mattel: Tough to Be Contrarian? – Barron’s

In January, Mattel (MAT) appointed Margaret Georgiadis, an Alphabet (GOOGL) executive, as its new CEO. In June, she made big changes, including cutting Mattel’s dividend and refocusing on innovation. None of this has helped Mattel’s shares, which have dropped 24% this year, even as Hasbro (HAS) has surged 43%.

Despite the underperformance, MKM’s Eric Handler isn’t ready to recommend a contrarian play on Mattel just yet:

Growth plan has merit but plenty of question marks remain as estimates continue to move lower. In our view, Mattel’s medium-term goal of generating mid-to-high-single digit revenue growth and 15% operating margin appears aggressive, at least over the next two years. We like elements of CEO, Margo Georgiadis’ turnaround plan but the combination of ongoing revenue headwinds with multiple brands and the lack of long-term planning in recent years, which has damaged near-term growth prospects, gives us concern. To reflect the challenges in Mattel’s recovery we have lowered our financial projections and our fair value estimate to $22 (20x our 2018E EPS of $1.08, down from $1.42) from $24. Our view does mirror the consensus wait and see approach (and reflected in the 3% decline in Mattel shares since the 6/14/17 investor meeting versus a flat S&P 500) but the current lack of business visibility makes it tough for us to come up with a convincing contrarian view.

Shares of Mattel have dropped 2.1% to $21.08 at 11:04 a.m. today, while Hasbro has fallen 0.5% to $110.95.  Alphabet has decline 0.7% to $110.95.


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