Mattel Rallies on Results But Street Takes More Cautious View

(Bloomberg) -- Mattel Inc. shares rallied pre-market Friday after first-quarter results topped estimates, but sell-side analysts voiced concern that it remains too early to pop the champagne.

MKM Partners said the Barbie-maker is “starting off the new year well but there is still a lot of wood to chop.” While the first-quarter print “came in well ahead of expectations,” the improving story remains “too early” to win over SunTrust analysts who highlighted the “very small sample size.”

Mattel Rallies on Results But Street Takes More Cautious View

Shares of the El Segundo, California-based Mattel rose as much as 11 percent in early trading to touch $13.61. The blowout results came less than three days after peer Hasbro Inc. jumped the most in 23 years after margins reached the highest level since 2016.

Here’s what Wall Street is saying:

MKM Partners, Eric Handler

“Mattel exceeded projections across all key metrics in 1Q” though there is “typically a limited read-through from what is by far the seasonally slowest quarter of the year.”

Highlights that Barbie and Hot Wheels continued to “perform well and management continues to deliver on expense management,” while “Fisher-Price and Thomas the Train as well as American Girl are still in decline.”

Needs increased confidence “the 60% of company revenue which has been in a downturn can not only stabilize but also develop a path for consistent growth” to become more constructive on shares.

Neutral, price target $14 from $13.

SunTrust, Michael Swartz

“While we are slightly raising our 2019/2020 estimates, we remain cautious N-T given several transformational initiatives underway (i.e. execution risk) and potential for disruption to MAT’s core Dolls business later this year.”

Management maintained its full-year outlook “despite the wide sales/earnings outperformance” compared to consensus estimates.

First-quarter results are a “very small sample size with 85% of MAT’s revenue generated over the balance of the year” amid elevated near-term risk as Mattel executes on turnaround initiatives.

Hold, $15 price target.

BMO, Gerrick L. Johnson

“Solid holiday sales left the retail channel extremely clean resulting in a stronger-than-expected channel refill, helping to drive better-than-expected sales.”

“Management sounds confident the brand’s reputation will be able to overcome any long-term impact.”

Outperform, $20 price target.

Goldman Sachs, Michael Ng

“The lack of flow-through reflects the small magnitude” of the first-quarter to the rest of the year as well as a “dampened outlook for Fisher-Price following the Rock ’n Play recall.”

Neutral, $12 price target.


What Bloomberg Intelligence says

“Mattel’s better-than-expected 1Q sales -- down 3% -- reflect continued success with Barbie and Hot Wheels, while highlighting the prolonged underperformance of other brands, which are a drag on the portfolio. We are confident that the duo will remain Mattel’s key sales driver, but believe persistent Fisher-Price weakness -- exacerbated by a recall -- will offset any sales growth this year.”

-- Caitlin Noselli and Brian Egger, gaming and lodging analysts
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