Shares of Mattel Inc . (NASDAQ:MAT) experienced a surge on Wednesday, following Morgan Stanley's initiation of coverage with an Overweight rating on the toy manufacturer. The firm's analysts anticipate a recovery in the company's top line as shipping seasonality and inventory levels normalize.
Analyst Dara Mohsenian and his team have set Mattel's 2023 and 2024 EPS estimates above consensus, driven by expectations of a strong gross margin recovery. The company is also projected to benefit from higher capital returns as free cash flow accelerates.
According to InvestingPro, Mattel's market cap is adjusted to 7.73B USD and the company's P/E ratio is 34.18. The company has seen a significant price uptick over the last six months, trading near its 52-week high, as per InvestingPro Tips.
Morgan Stanley's Q3 EPS estimate for Mattel stands at $0.99, which is 20% above the Street's $0.82. The analysts believe that Mattel's earnings report in mid-October could be a catalyst for upward revisions. Interestingly, 4 analysts have revised their earnings downwards for the upcoming period, but Mattel's strong return over the last three months could indicate a promising future, as suggested by InvestingPro Tips.
The Barbie business, in particular, is expected to provide significant tailwinds stemming from lucrative licensing efforts related to the summer blockbuster. The company recently quantified that these benefits to second half billings will exceed $125 million and flow through at a roughly 60% blended operating margin. This indicates a 3- to 4-point boost to 2H sales and approximately 16 points to operating profit, primarily concentrated in Q3.
Despite this creating a challenging comparison for next year, the analysts foresee a long tail for the brand and related consumer products due to the cultural resonance of the movie. The benefits are expected to continue into 2024. The success of the movie also enhances Mattel's standing with consumer products partners, which should help catalyze future growth opportunities.
In terms of valuation, Mattel is currently trading below its historical levels at 15X P/E and 10X EV/EBITDA. Morgan Stanley's year-end 2024 price target of $27 is based on 10X EV/EBITDA on the 2024 estimates, which aligns conservatively with the current near-term multiple but is balanced by a roughly 17X P/E multiple. This is in line with the InvestingPro data which shows Mattel trading at a high earnings multiple.
On Wednesday, Mattel shares closed 2.92% higher at $21.84. The 52-week high for the toy stock is $22.64. This aligns with the InvestingPro data which shows the price as a percentage of the 52-week high at 93.73%. For more insights, investors can visit InvestingPro's site to access additional 7 tips about Mattel.
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