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Mattel (MAT) Up 78% in 6 Months: What's Driving the Stock?

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Shares of Mattel, Inc. (MAT - Free Report) have soared 77.7% in the past six months, compared with the industry’s growth of 5.1%. The company is benefiting from increase in worldwide gross sales for Dolls, Vehicles, Barbie and Hot Wheels. Moreover, initiatives like product innovation, promotional strategies, digital efforts, and increased focus on structural simplification bode well. Let’s delve deeper.

Key Catalysts

Although the company’s total sales declined due to the pandemic, it surpassed the company’s expectation. However, the major take away from third-quarter 2020 is sales growth in North America Barbie and games. In North America, gross sales increased 13% year over year. This can primarily be attributed to increase in sales in Dolls, Action Figures, Building Sets, Games, and Other (comprising Star Wars: The Child plush, card games, including UNO, Jurassic World, and Pictionary, partially offset by Toy Story 4), and Vehicles (including Hot Wheels and CARS). The improvement was marginally negated by decline in Infant, Toddler, and Preschool (comprising Fisher-Price Friends and Fisher-Price and Thomas & Friends).

Moreover, Barbie brand continues to impress investors with solid performance. In the third quarter, the Barbie brand witnessed an improvement of 29% on reported basis and 30% on constant-currency basis. Barbie point of sales increased 50%. Per NPD, Barbie gained market share in the dolls category in the third quarter and was the number one toy property in the United States, Europe and Latin America. The company also witnessed strong Hot Wheels sales in the third quarter after witnessing dismal performance in second-quarter 2020. In third-quarter 2020, gross sales at the Hot Wheels brand rose 7% on a reported basis and 9% on constant-currency basis.

Given a strong product line-up, which includes core brands, licensed brands and lucrative product associations, Mattel remains well positioned for growth. Owing to its popularity among young boys and girls, the company’s premier brands like Hot Wheels have been category leader in multiple product segments for several years.

Mattel, in its third-quarter 2020 earnings release, highlighted that it has enough liquidity to manage the ongoing crisis. As of Sep 30, 2020, the company had $2.9 billion debt, almost flat sequentially. It ended the quarter with cash and cash equivalent of $452.2 million, compared with $461.6 at the end of second-quarter 2020. Although the company’s cash is quite low in comparison to its debt, it has no debt maturing until March 2023. The company also has access to $1.6 billion senior secured revolving credit facilities.

Let’s take a look at Mattel’s’ earnings estimate revision in order to get clear picture of what analysts are thinking regarding the company’s future. In the past 30 days, earnings estimates for 2020 and 2021 have increased 49 cents and 29 cents to 37 cents and 49 cents, respectively.

Zacks Rank & Other Key Picks

Mattel currently carries a Zacks Rank #2 (Buy). Other stocks, which warrant a look in the same space include Activision Blizzard, Inc. (ATVI - Free Report) , Glu Mobile Inc. (GLUU - Free Report) and JAKKS Pacific, Inc. (JAKK - Free Report) . All these stocks have the same rank as Mattel. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Activision Blizzard and Glu Mobile has an impressive long-term earnings growth rate of 16% and 15%, respectively.

Shares of JAKKS Pacific have increased 16% in the past month.

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