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Bear of the Day: Mattel (MAT)

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Mattel, Inc. (MAT - Free Report) recently warned on the full year as its brands struggle to compete this holiday season. This Zacks Rank #5 (Strong Sell) is expecting a plunge in earnings in 2017.

Mattel makes toys including such iconic toys as Barbie, Fisher-Price, Hot Wheels, Thomas & Friends and American Girl. It operates in 40 countries and sells products in more than 150.

Warns on the Full Year

But things are not well at the House of Barbie in 2017.

On Dec 9, the company announced it was lowering its 2017 full year guidance as Black Friday and the holiday season isn't shaping up well.

Its brands continue to under perform and retailers are also keeping tighter than normal inventory. Gross margins and earnings are expected to fall further in the fourth quarter.

However, in one bright spot, it did announce it will offer a $1 billion in senior unsecured notes due in 2025. This will replace the current revolving credit facility and give the company some financial breathing room.

It will use proceeds to repay all of its 1.700% Senior Notes due 2018 upon or before maturity and repay all outstanding borrowings related to its commercial paper program.

Full Year Estimates Slashed

Given the earnings warning, it's not surprising that the earnings estimates are being slashed.

6 have been cut for the full year in the last 60 days, pushing the Zacks Consensus to just $0.04 from $0.73 in that time. That's a decline in earnings of 96% as Mattel made $1.06 in 2016.

Estimates have also been cut for 2018 with the Zacks Consensus Estimate falling to $0.49 from $0.89. We will see how well this holds, however, as the recent warning is still being factored in by the analysts.

Already Suspended the Dividend

You know it's bad when a company cuts or suspends its dividend. In this case, Mattel announced on Oct 26 that the Board opted to suspend the $0.15 a share dividend starting in the fourth quarter, to conserve cash.

It will save the company $50 million per quarter.

Additionally, its cost savings plan is expected to total $650 million in savings.

Possible Hasbro-Mattel Acquisition?

There have been rumors that Hasbro may acquire Mattel. After all, its intellectual property, alone, is worth a hefty price.

But neither company has commented on that and now Mattel has moved forward with resolving its debt situation.

Still, the shares jumped off their lows on the acquisition hopes.



But they are, once again, sinking.

Are Shares Cheap?

Before you get excited that maybe Mattel is a value stock, with the estimates being slashed, it looks more like a value trap.

It's forward P/E is 368 and earnings growth is in the decline.

If you must buy a toy maker this holiday season, you might want to consider Hasbro (HAS - Free Report) instead. It has a Zacks Rank of #3 (Hold). Its valuation is more attractive with a forward P/E of just 18.3.

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