Mattel Earnings Preview: Solid Results Expected

Mattel MAT, the company behind the Barbie, Hot Wheels, Fisher-Price and American Girl brands, is scheduled to report its third-quarter 2011 results tomorrow, October 14. The El Segundo, Calif.-based toymaker saw increased options activity this morning, and it remains under the cloud of a lost lawsuit ruling over the rights to use Bratz dolls, though the company is appealing the ruling. Analysts on average predict that Mattel will report earnings of $0.86 per share, up from $0.77 per share in the same quarter of last year. That EPS estimate is unchanged from 60 days ago. And note that per-share earnings have not fallen short of consensus estimates in the past four quarters. The forecast also calls for the company to post revenues of $1.9 billion, which would be a 7.6% increase from a year ago. Looking ahead to the current quarter, which will include the holiday season, analysts so far are looking for only 4.9% year-over-year growth in revenues. And the forecast for the full year so far calls for revenues up 7.9% from a year ago, with per-share earnings 13.1% higher. The Company Mattel designs, manufactures and markets such products as fashion dolls and accessories, toy vehicles, play sets, games and puzzles, as well as publishing activity books and magazines. The company offers its products to retailers such as toy stores and department stores, as well as to wholesalers, distributors, and via the Internet. Mattel was founded in 1945 and it now has a market cap of $9.6 billion. During the three months that ended in September, the company appealed the Bratz ruling, as mentioned above. The company also said that popularity of Cars 2-related products drove its strong second-quarter results, and Elliot Handler, one of Mattel's cofounders and the creator of Hot Wheels, passed away at 95. Performance The company has a long-term earnings per share growth forecast of 12.9% and a return of equity of 28.0%. The P/E ratio is higher than the industry average, but so is the operating margin. Thirteen of 17 analysts following the stock rate it a Buy or Strong Buy, and they have a mean price target of $32.07 per share. At $27.61, the share price is more than 13% higher than at the beginning of the year; it is up more than 6% in the past week. Shares are trading near the 52-week high and are well above the 50-day and 200-day moving averages. The stock has outperformed competitor Hasbro HAS and the broader markets over the past six months. Action Items: Bullish: Investors interested in exchange traded funds invested in Mattel might want to consider the following trades:

• Rydex S&P Equal Weight Consumer Discretionary RCD is more than 8% higher in the past week.
• Consumer Discretionary Select Sector SPDR XLY is about 7% higher in the past week.
• Guggenheim Mid-Cap Core CZA is more than 6% higher in the past week.
• iShares Dow Jones Select Dividend Index DVY is more than 4% higher in the past week,

Bearish: Traders may want to consider these alternative positions:

• ProShares UltraShort Russell MidCap Value SJL is more than 14% higher than six months ago.
• Direxion Daily Mid Cap Bear 3X Shares MWN is more than 9% higher than six months ago.

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