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Bull of the Day: Mattel (MAT)

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Mattel (MAT - Free Report) is a Zacks #1 (Strong Buy) that is the world’s largest manufacturer of toys.  The company operates through the North America, International and American Girl segments. Some popular toy brands include Barbie, Polly Pocket, Hot Wheels, Match Box, Power Wheels, and Fischer-Price.

The stock has been stuck under the $20 level for over four years. After a nice stretch of earnings beats and one of the best quarters in years, investors are looking for the stock to breakout.

More About the Company

Mattel was founded in 1945, is headquartered in El Segundo, CA and has over 32,000 full-time employees. The company sells its products through its catalog, website and retailers.  

In addition to the brands listed above, Mattel’s partner brands include Disney, WWE Wrestling, Nickelodeon, Warner Bros. Consumer Products, NBC Universal and Mojang.

The company has a market cap of $7.5 Billion and has Zacks Style Scores of “A” in Momentum and “A” in Growth. The stock pays no dividend and has a Forward PE of 24.

Recent Earnings and Guidance

Back in February the company had an investor day shortly after it posted a 66% earnings beat. The CEO laid out the narrative that the company was experiencing a positive shift in momentum with brands that are seeing a turnaround. More specifically, Fischer-Price, Thomas & Friends, American Girl and MEGA were brands that were resonating with consumers at levels not seen in years.

Because of this, Mattel believed that they were well positioned to accelerate top-line growth, market share and profitability improvement.  

The company reiterated its FY21 guidance at the time, but when they reported last week, the outlook got even better.

Mattel reported a 71% beat on EPS and as revenues came in at $874.2M v the $686M expected. Worldwide gross billings were up +45% y/y, while billing for action figures, building sets, games and other were up 66% y/y. These numbers forced the company to revise FY21 revenue guidance 6-8% higher.

Estimates and Analyst

Over the last 7 days, estimates have jumped higher. For the current year, we have seen estimates raised by 13%, from $0.79 to $0.89. For next year, we have seen a 12% move higher in that same time frame.

Analysts liked the quarter and the recent momentum. Stifel commented that all product categories, brands and geographies performed ahead of their model. Truist commented that “this is one of the strongest prints that MAT has put up in recent memory”.

The theme is a turnaround story with the brands revitalized during COVID. Investors have noticed and the stock is on the verge of a technical breakout.

Technicals

Looking at the chart over the last year, you might think investors have gotten ahead of themselves. Since the March lows, the stock has rallied from $6.53 to over $21.

However, going back over the last decade you can see that in 2013 this was a $48 stock. Some brands just fell out of trend and the company added a lot of debt, which caused investors to flee.

With the stock over $20, it breaks levels not seen since 2017. The $25 level is 61.8% Fib retreacemnet drawn from the 2016 highs to recent lows. If the bulls can show momentum over that level, this breakout could accelerate.

For those looking for pullbacks, the 50-day moving average is $20.38. This level has been support for almost a year and could be a great place to start a position for the long-term.

Bottom Line

Toys do not typically excite investors, but when the numbers show a turnaround story, money can flow fast into a stock. Mattel likely doesn’t put up the same kind of growth over the next year. However, the company is finding ways to add to revenue, like launching two Barbie specials on Netflix.

Investors need to recognize that as these brands continue to come back, so will the stock.

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