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Here's Why Investors Should Hold On to Mattel (MAT) Stock Now
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Mattel, Inc. (MAT - Free Report) is benefiting from a strong product lineup, which includes core brands, licensed brands and lucrative product associations. However, supply-chain disruptions and inflationary pressures remain major concerns. Let’s delve deeper.
Growth Drivers
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 brand Hot Wheels has been the category leader in multiple product segments for several years. Continued strategic investments in the brand are likely to keep widening the depth of fun kids can have with Hot Wheels.
Strong performance of this Zacks Rank #3 (Hold) company’s Hot Wheels continues to impress investors. In 2018, worldwide gross sales for Hot Wheels were up 9% and reached the highest annual sales in its 50-year history. In 2020, worldwide gross sales at the Hot Wheels brand increased 3% on a reported basis and 5% at constant currency (cc). During 2022, gross billings at the Hot Wheels brand rose 8% (on a reported basis) and 13% (at cc) year over year. The company is witnessing an improving sales trend for Hot Wheels and is quite confident about the brand’s long-term prospects.
Through its current cost-saving program, Mattel remains focused on achieving cumulative cost savings, thus, enhancing margins. Basically, the company is simplifying its organization structure, optimizing processes and supply chain to generate savings across operations. Meanwhile, the company is focused on strong cost and productivity initiatives to support growth, operate more efficiently and rebuild margins. Going forward, Mattel anticipates the program along with the integration of the Capital Light Program to deliver incremental savings of $80 million to $90 million in 2022 and additional savings of $300 million by 2023.
Image Source: Zacks Investment Research
Concerns
During the fourth quarter, cost inflation had a negative impact on the company’s operations due to a rise in raw materials’ price. During the quarter under review, adjusted gross margin contracted 620 basis points year over year to 43% due to inventory management initiatives, which includes higher close-out sales as well as inventory obsolescence expense, higher input cost inflation, unfavorable fixed cost absorption and higher royalty costs. The challenging environment is likely to persist for some time.
For 2023, the company anticipates flat net sales in comparison with 2022 at cc. Adjusted gross margin for 2023 is expected at nearly 47% compared with 45.9% reported in the prior year. Adjusted EBITDA for 2023 is expected to be in the range of $900-$950 million compared with $968 million reported in the prior year. Capital expenditures for 2023 are expected to be in the range of $175-$200 million compared with $187 million reported in 2022. The company anticipates 2023 adjusted earnings per share (EPS) of $1.10-$1.20, down from $1.25 reported in 2022.
So far this year, the company’s shares have declined 5.1% against the industry’s increase of 4.3%.
Las Vegas Sands sports a Zacks Rank #1 (Strong Buy). LVS has a long-term earnings growth rate of 2.5%. The stock has increased 35.6% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for LVS’ 2023 sales and EPS indicates a rise of 108.4% and 217.5%, respectively, from the year-ago period’s levels.
Hilton Grand Vacations currently flaunts a Zacks Rank #1. HGV has a trailing four-quarter earnings surprise of 12.1%, on average. Shares of HGV have declined 21.1% in the past year.
The Zacks Consensus Estimate for HGV’s 2023 sales and EPS indicates a rise of 7.1% and 10.8%, respectively, from the year-ago period’s levels.
Crocs carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 21.8%, on average. Shares of Crocs have increased 40.7% in the past year.
The Zacks Consensus Estimate for CROX’s 2023 sales and EPS indicates a rise of 12.5% and 2.5%, respectively, from the year-ago period’s levels.
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Here's Why Investors Should Hold On to Mattel (MAT) Stock Now
Mattel, Inc. (MAT - Free Report) is benefiting from a strong product lineup, which includes core brands, licensed brands and lucrative product associations. However, supply-chain disruptions and inflationary pressures remain major concerns. Let’s delve deeper.
Growth Drivers
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 brand Hot Wheels has been the category leader in multiple product segments for several years. Continued strategic investments in the brand are likely to keep widening the depth of fun kids can have with Hot Wheels.
Strong performance of this Zacks Rank #3 (Hold) company’s Hot Wheels continues to impress investors. In 2018, worldwide gross sales for Hot Wheels were up 9% and reached the highest annual sales in its 50-year history. In 2020, worldwide gross sales at the Hot Wheels brand increased 3% on a reported basis and 5% at constant currency (cc). During 2022, gross billings at the Hot Wheels brand rose 8% (on a reported basis) and 13% (at cc) year over year. The company is witnessing an improving sales trend for Hot Wheels and is quite confident about the brand’s long-term prospects.
Through its current cost-saving program, Mattel remains focused on achieving cumulative cost savings, thus, enhancing margins. Basically, the company is simplifying its organization structure, optimizing processes and supply chain to generate savings across operations. Meanwhile, the company is focused on strong cost and productivity initiatives to support growth, operate more efficiently and rebuild margins. Going forward, Mattel anticipates the program along with the integration of the Capital Light Program to deliver incremental savings of $80 million to $90 million in 2022 and additional savings of $300 million by 2023.
Image Source: Zacks Investment Research
Concerns
During the fourth quarter, cost inflation had a negative impact on the company’s operations due to a rise in raw materials’ price. During the quarter under review, adjusted gross margin contracted 620 basis points year over year to 43% due to inventory management initiatives, which includes higher close-out sales as well as inventory obsolescence expense, higher input cost inflation, unfavorable fixed cost absorption and higher royalty costs. The challenging environment is likely to persist for some time.
For 2023, the company anticipates flat net sales in comparison with 2022 at cc. Adjusted gross margin for 2023 is expected at nearly 47% compared with 45.9% reported in the prior year. Adjusted EBITDA for 2023 is expected to be in the range of $900-$950 million compared with $968 million reported in the prior year. Capital expenditures for 2023 are expected to be in the range of $175-$200 million compared with $187 million reported in 2022. The company anticipates 2023 adjusted earnings per share (EPS) of $1.10-$1.20, down from $1.25 reported in 2022.
So far this year, the company’s shares have declined 5.1% against the industry’s increase of 4.3%.
Key Picks
Some top-ranked stocks in the Zacks Consumer Discretionary sector are Las Vegas Sands Corp. (LVS - Free Report) , Hilton Grand Vacations Inc. (HGV - Free Report) and Crocs, Inc. (CROX - Free Report) .
Las Vegas Sands sports a Zacks Rank #1 (Strong Buy). LVS has a long-term earnings growth rate of 2.5%. The stock has increased 35.6% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for LVS’ 2023 sales and EPS indicates a rise of 108.4% and 217.5%, respectively, from the year-ago period’s levels.
Hilton Grand Vacations currently flaunts a Zacks Rank #1. HGV has a trailing four-quarter earnings surprise of 12.1%, on average. Shares of HGV have declined 21.1% in the past year.
The Zacks Consensus Estimate for HGV’s 2023 sales and EPS indicates a rise of 7.1% and 10.8%, respectively, from the year-ago period’s levels.
Crocs carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 21.8%, on average. Shares of Crocs have increased 40.7% in the past year.
The Zacks Consensus Estimate for CROX’s 2023 sales and EPS indicates a rise of 12.5% and 2.5%, respectively, from the year-ago period’s levels.