Mattel (MAT) Surges 62% in 6 Months: Will the Rally Continue?

Zacks Equity Research

Despite the coronavirus pandemic, shares of Mattel, Inc. MAT have done exceptionally well in the past six months. In the given time frame, the company’s shares have surged 62.1%, compared with the industry’s rally of 15.8%. Increase in worldwide gross sales for Dolls, Barbie and Hot Wheels bode well. Meanwhile, the company is focused on strong cost and productivity initiatives to support growth, operate more efficiently and rebuild margins.

Moreover, an upward revision in earnings estimates for 2021 reflects analysts’ optimism regarding the company’s growth potential. In the past 30 days, the Zacks Consensus Estimate for its 2021 earnings has moved up 2.7% to $77 cents per share. Let’s delve deeper and analyze if the Zacks Rank #1 (Strong Buy) company can sustain this momentum in the days ahead. You can see the complete list of today’s Zacks #1 Rank stocks here.

Growth Drivers

Given a strong product line-up, which includes core brands, licensed brands and lucrative product associations, Mattel remains well-poised for growth. The company’s premier brand like Hot Wheels has been the category leader in multiple product segments for several years owing to its popularity among young boys and girls. Continued strategic investments in the brand are likely to keep it popular among kids in the days ahead. Mattel has also forayed into other consumer product categories such as apparel, fashion and accessories to build the brands.

Barbie brand continues to impress investor with solid performance. In the fourth quarte. The brand’s worldwide gross billings witnessed an improvement of 19% on reported basis and 18% on constant-currency basis. Notably, Barbie point of sales increased 30%. The upside can primarily be attributed to design led innovation, cultural relevance and executional excellence. Per NPD, Barbie was the number one toy property, globally. Going forward, the brand has new fashion segments like Barbie EXTRA and Ken Turned 60, in its pipeline. This along with increased focus on new content and digital engagement are likely to drive growth in upcoming quarters.

The company, which shares space with Hasbro, Inc. HAS, JAKKS Pacific, Inc. JAKK and Activision Blizzard, Inc. ATVI, witnessed strong Hot Wheels sales in fourth-quarter 2020. Notably, gross sales at the Hot Wheels brand climbed 13% on a reported basis and 14% on constant-currency basis. Moreover, Hot Wheels POS were up double digits in the quarter. The company has been witnessing improving sales trend for Hot Wheels and is quite confident about the brand’s long-term prospect.

Moreover, robust North America sales bode well. During the fourth quarter, North America segment sales increased 13% year over year on a constant-currency basis. This can primarily be attributed to increase in sales in Dolls (including Barbie), Infant, Toddler, and Preschool (including Fisher-Price and Thomas & Friends), Action Figures, Building Sets, Games, and Other. However, the improvement was marginally offset by decline in lower billings of licensed action figures), and Vehicles (including Hot Wheels).

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