Come On, Barbie, Let's Go Party! Mattel Still In The Early Stages Of Its Turnaround

Argus maintains its Buy rating and $38 target price on Mattel, Inc. MAT as it still believes the company is in the early stages of its turnaround under new CEO Christopher Sinclair.

According to the brokerage, the company has improved marketing and business execution under the new leadership and Argus expect this progress to continue as Mattel develops new products and improves relationships with retailers.

This week, Mattel reported adjusted third-quarter EPS of $0.70 in line with the consensus estimate. Net sales rose 2 percent in constant currency to $1.8 billion, above the consensus of $1.78 billion.

“We expect the company to improve the delivery of new products to retailers this year, and to recover some of the shelf space lost in 2015,” analyst John Staszak wrote in a note.

Related Link: Nearly Every Mattel Segment Sees A Sales Increase

Over the long term, Staszak expects the gross margin to top 50 percent, with selling and administrative expenses just above 22 percent of revenue.

The analyst projects an operating margin of 14.1 percent in 2016 (versus 11.2 percent in 2015) and 15.8 percent in 2017. The analyst estimates 2016 EPS of $1.50 and 2017 EPS of $1.90.

The target price of $38 implies a multiple of 20-times its 2017 EPS estimate, and a potential total return of more than 21 percent including the dividend.

At time of writing, shares of Mattel were up 0.28 percent to $32.55.

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