Mattel Gains as Investors Bet That Toys ‘R’ Us Pain Will Subside

(Bloomberg) -- Mattel Inc. rose the most in more than two months after Jefferies LLC boosted its rating on the shares, saying that the impact from Toys “R” Us Inc.’s bankruptcy is already priced into the stock.

Cost cutting also could help improve the toymaker’s earnings, said analyst Stephanie Wissink, who upgraded her recommendation to hold from the equivalent of sell. And the prospect of a takeover may help bolster the stock, she said in a note to clients.

Still, she has little hope of a fast recovery for Mattel, which is expected to report its quarterly earnings sometime this month.

“It’s unclear what the market will value in the wake of the report,” Wissink said. “Near-term risks are largely known and priced in.”

The upgrade helped send the shares as much as 7.2 percent to $14.49 on Wednesday, marking the biggest intraday gain since Feb. 9. They had lost 12 percent this year through Tuesday’s close, battered by the bankruptcy and liquidation of Toys “R” Us, one of its largest customers.

Mattel Chief Executive Officer Margo Georgiadis, a veteran of Google, is trying to turn around the El Segundo, California-based company by revamping its product line and shaking up management. But the seller of Barbie and Fisher-Price faces an uphill fight. In the previous quarter, Mattel posted a surprise loss and a plunge in revenue.

In the short term, Toys “R” Us customers racing to use up their gift cards may provide a bit of a lift to Mattel sales, Wissink said. The timing of the Easter holiday season also could benefit the toy company. But her confidence in Mattel’s recovery remains “very low,” according to the report.

Wissink also expressed concern about the company’s $500 million debt payment, due during the first half of 2019. Mattel’s debt rating was downgraded last month by Moody’s Investors Service, which cited the disruption from the Toys “R” Us liquidation.

©2018 Bloomberg L.P.