On Wednesday, BofA Securities adjusted its outlook on Mattel Inc . (NASDAQ: NASDAQ:MAT) shares, increasing the price target to $26 from the previous $25, while maintaining a Buy rating on the stock. The adjustment follows Mattel's first-quarter results, which showcased a narrower adjusted earnings per share (EPS) loss than anticipated and significant gross margin growth.
Mattel reported an adjusted EPS loss of $0.05 for the first quarter, bettering the BofA Securities' estimate of a $0.12 loss. This performance was largely attributed to a gross margin increase of 48.3%, exceeding the forecasted 44.0%. The improvement in margins was driven by reduced inventory management costs, cost deflation, and savings across the company.
The company's brand portfolio saw varied results, with Hot Wheels leading the way with a 5% growth in gross billings. In contrast, both Barbie and Fisher-Price brands reported flat results in terms of gross billings growth. BofA Securities has revised its 2024 EPS estimate for Mattel to $1.44, up from $1.40, with several factors influencing this outlook.
The revised forecast includes a 2% sales increase in the second quarter as Mattel moves past channel destocking from the previous year. However, a 3% decline in third-quarter sales is anticipated due to challenging comparisons with the previous year's strong Barbie sales, which saw a 17% increase in gross billings in the third quarter of 2023.
For the fourth quarter, sales are expected to remain relatively flat, with anticipated share gains and retail shelf expansions for key brands during the holiday season, despite a more challenging retail calendar.
The new price objective of $26 is based on a 16-17 times projected 2025 earnings per share, compared to the prior multiple of 18 times the 2024 earnings estimate. This valuation reflects confidence in Mattel's future performance and its strategic initiatives.
InvestingPro Insights
Following the positive assessment from BofA Securities, Mattel Inc.'s financial health and market performance provide additional insight into the company's current standing. The company's market capitalization stands at $6.76 billion, reflecting its substantial presence in the industry. Mattel operates with a moderate level of debt and has been able to maintain liquid assets that exceed its short-term obligations, which may contribute to the company's agility in managing its finances. Additionally, analysts are bullish on Mattel's profitability, predicting that the company will maintain profitability this year, a sentiment supported by the company's performance over the last twelve months.
With a P/E ratio of 22.73 and an adjusted P/E ratio for the last twelve months as of Q1 2024 at 20.53, Mattel's valuation metrics suggest that investors are expecting earnings growth. The company's gross profit margin for the same period stands at a strong 48.67%, aligning with the gross margin growth highlighted in the recent quarterly report. Moreover, Mattel's commitment to reinvesting in its business is evident, as it does not currently pay a dividend to shareholders, potentially offering room for future expansion and product development.
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