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Key Takeaways on Mattel Stock
- Mattel owns Barbie, Fisher Price and Hot Wheels;
- The company delivered operating margins of around 13% in 2022;
- Mattel Stock is trading at an 18% discount to Morningstar’s fair value estimate.
Ruth Saldanha: This Friday, two highly anticipated movies release on the same day. Barbie, starring Margo Robbie and Ryan Gosling, and Christopher Nolan’s Oppenheimer. Whichever one wins at the Box Office, you could play around with the idea of adding toymaker Mattel (MAT) to your portfolio, especially as it's trading at a discount to our fair value estimates.
Historically, Mattel has made some of the world's most popular toys, thanks to its well-known brands like Hot Wheels and Fisher-Price – and, yes, Barbie. It also has key license relationships like Disney Princesses and Despicable Me. The company continues to harvest gains from its turnaround, delivering above break-even operating margins starting in 2019 and reaching around 13% in 2022.
Morningstar analyst Jamie Katz expects Mattel to produce further adjusted operating margin expansion ahead, benefiting from its $300 million cost-saving program. She thinks investments will focus on elevating core brands like Barbie, Hot Wheels and Fisher-Price, winning licenses, and decreasing time to market, which should support sales and market share growth.
Over time, stronger brands could lead to gross margin leverage stemming from a focus on higher-margin franchise brands and the optimization of retail inventory position. At present, the stock is trading at a 18% discount to Katz’s US$25 fair value.
For Morningstar, I’m Ruth Saldanha.
Mattel Stock Bulls Say
- Mattel's size allows it to fund new products, expand into high-growth emerging markets, and make acquisitions, while its portfolio of brands lends itself to scalable expansion in new categories like digital and new franchises;
- As one of the largest players in the toy industry, Mattel is a preferred licensing partner for important tie-ins with entertainment companies;
- Mattel's prior cost-saving and capital-light initiative yielded $1 billion in run-rate savings. Efforts beyond the $300 million expected from the Optimizing for Growth initiative could further reduce expenses.
Mattel Stock Bears Say
- The target market for traditional toy manufacturers could continue to shrink as a percentage of total toy sales, hurt by digital content that becomes more pervasive in product selection;
- Supply chain congestion, geopolitical disruptions, and inflationary headwinds could prevent Mattel from reaching its prior 16% operating margins goal until after 2029;
- Mattel's inability to capture entertainment and licensing contracts could lead peers to become more attractive. Prior losses of contracts like the DC Comics boys license display difficulty around maintaining key agreements.
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