Why Mattel May Miss The Santa Claus Rally This Year

Mattel, Inc. MAT rules the island of misfit toymakers.

Amid the Toys R Us bankruptcy and a massive third-quarter sales miss, the manufacturer trades down 34.3 percent year-to-date, redeemed only by recent reports of Hasbro, Inc. HAS’s takeover bid.

Despite Mattel’s struggles, none on the Street consider it sell-worthy, but at least one doubts that improvement is imminent. 

The Rating

Argus analyst John Staszak maintains a near-term Hold and long-term Buy on the stock with no price target.

The Thesis

Mattel conceded gross margins last quarter through higher royalty payments, lower licensing income and a non-competitive portfolio, and Argus doesn’t see its fortune soon turning. 

“Although sales should benefit from the new ‘Cars 3’ license, we expect the loss of the Disney Princess license and weak sales of the company’s key brands to weigh on earnings over the remainder of 2017,” Staszak said in a Tuesday note. (See Staszak's track record here.) 

The company’s girls and boys, Fisher Price, American Girl, and arts and crafts brands have declined a respective 10 percent, 16 percent, 30 percent and 30 percent year-over-year, the analyst said. 

Staszak predicts a turnaround will several quarters and occur independently of Hasbro, whose buyout bid he expects to be blocked by antitrust regulators. The analyst accordingly lowered his 2017 earnings per share estimate from $1 to 80 cents.

Price Action

Mattel was trading down less than 1 percent Tuesday at a rate of $18.08.

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Photo courtesy of Mattel.