Is Barbie Good Enough For Mattel In Uncertain Conditions? Morgan Stanley Has Answers

Morgan Stanley analyst Megan Alexander reiterated an Overweight rating on the shares of Mattel Inc MAT and lowered the price target from $27 to $25.

The analyst says that MAT posted a strong Q3 beat, but it was met with muted flow-through to the full-year guide, which likely disappoints against a high bar.

In the analyst’s view, the Q4 sales guidance is reasonable as the implied sequential step-down in billings is far worse than any year, with the exception of 2022, when retail inventory levels were elevated.

The company maintained its guidance for flat sales growth in constant currency as a weaker industry outlook is offset by tailwinds from the Barbie movie, writes the analyst.

The analyst estimates a 50.8% gross margin for Q4 as the company laps headwinds from inventory actions, sees benefits from ongoing costs savings and improving product costs, partially offset by continued headwinds from fixed cost absorption. 

Looking to FY24, in a still uncertain macro, the analyst sees toys as better positioned relative to other discretionary categories in the coverage.

The analyst acknowledges that the stock could face some near-term valuation headwinds until the visibility to the holiday and FY24 improves.

The analyst estimates $5.56 billion in sales, a 49.1% gross margin, and $1.45 in EPS for FY24.

The analyst sees a positive and favorable risk/reward over the next 12 months and views the long-term IP monetization opportunity as still underappreciated.

Price Action: MAT shares are trading lower by 6.79% at $18.75 on the last check Thursday.

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