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World’s largest toys manufacturer, Mattel, Inc. (MAT - Analyst Report), is set to report its second-quarter 2013 results on Jul 17, 2013.

In the last quarter, the company posted a positive earnings surprise of 37.5%. Let’s see how things are shaping up prior to this announcement.

Factors to Consider This Quarter

We believe Mattel’s diversified portfolio of brands positions it well to generate above-average industry growth. With a strong momentum in Mattel’s core brands, including Other Girls Brands, Monster High andAmerican Girl Brand, its top line is expected to improve in the ensuing quarter.

The company’s cost containment initiatives and the HIT acquisition will aid bottom-line expansion. We also believe that the company’s extended partnership with Feld Entertainment and the new licensing agreement with Toy State will further help Mattel to boost its Hot Wheels brand portfolio in the mass market.

However, increasing input costs and a tough retail environment could continue to hurt results. Moreover, persistent sluggishness in Mattel’s powerhouse brand, Barbie, and sluggish performance of Core Fisher-Price products also remain overhangs.

Earnings Whispers?

Our proven model does not conclusively shows that Mattel is likely to beat the earnings this quarter. A stock needs to have both a positive Earnings ESP (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank #1, #2 or #3 to surpass the earnings estimates. However, this is not the case here, owing to the following factors:

Zacks ESP: ESP for Mattel is 0.00% since the Most Accurate Estimate stands at 31 cents per share, which is in line with the Zacks Consensus Estimate.

Zacks Rank #2 (Buy): Mattel’s Zacks Rank #2 (Buy) has little effect on the predictive power of ESP because the Zacks #2 Rank when combined with a 0% ESP makes surprise prediction difficult.

We caution against stocks with Zacks Ranks #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies you may want to consider, as our model shows they have the right combination of elements to post an earnings beat this quarter:  

JAKKS Pacific, Inc. (JAKK - Analyst Report) has Earnings ESP of +50.00% and a Zacks Rank #2 (Buy).

Monarch Casino & Resort Inc. (MCRI - Snapshot Report) has Earnings ESP of +4.55% and carries a Zacks Rank #3 (Hold).

Melco Crown Entertainment Limited (MPEL - Snapshot Report) has Earnings ESP of +12.00% and holds a Zacks Rank #3 (Hold).

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