Buy Mattel? Stifel Thinks So After Earnings

• Shares of Mattel, Inc. MAT have appreciated 28.69 percent over the past six months, while rising almost 12 percent Tuesday morning.
• Stifel’s Drew E. Crum has upgraded the rating on the company from Hold to Buy, with a price target of $33.
• The company’s robust Q4 performance indicates stabilization/growth of core brands, and combined with the upcoming Toy Fair, could act as near-term catalysts for the stock.

Analyst Drew Crum believes that “a combination of stabilization/growth for core brands, a better entertainment pipeline, and opportunities to improve OPM through leverage + cost reductions” could drive an earnings recovery in 2017, which would in turn lead to share price appreciation.

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On the other hand, the dividend, which has not been cut by the company, offers downside protection for the stock.

Mattel reported better-than-expected results for the holiday season with core brands growing 2 percent, the first positive comp since 4Q11. The core brands, collectively, represent 60 percent of the company’s gross sales.

Crum also noted that Mattel has an enhanced entertainment pipeline with the 2016-2018 content cycle expected to be the best that the company has had since 2011.

In addition, the company is expected to see opportunities to improve is operating margins, which declined to 11.2 percent in 2015.

“We see leverage and further cost cutting, driving margin gains ~ management suggested the company will approach its intermediate-term target as early as 2017,” Crum stated.