Bank of America raises Mattel stock price target on strong gross margins

On Wednesday, BofA Securities revised its outlook Mattel . (NASDAQ: ) stock, raised its price target to $26 from the previous price of $25 while maintaining a Buy rating on the stock. The adjustment comes after Mattel reported first-quarter results that showed a narrower-than-expected adjusted earnings per share (EPS) loss and a sharp increase in gross margin.

Mattel reported a first-quarter adjusted earnings loss of $0.05 per share, better than BofA Securities' estimate of a loss of $0.12. This performance was largely due to gross profit margin growth of 48.3%, which exceeded expectations of 44.0%. The margin improvement was driven by lower inventory management costs, cost tightening and savings across the company.

The company's brand portfolio delivered mixed results, with Hot Wheels leading the way with a 5% increase in total sales. In comparison, total revenue growth for both the Barbie and Fisher-Price brands was flat. BofA Securities raised its 2024 earnings per share forecast for Mattel to $1.44 from $1.40. There are several factors affecting this outlook.

The revised forecast includes second-quarter sales growth of 2% as Mattel shakes off last year's channel destocking. However, third-quarter sales are expected to decline 3% as total sales grew 17% in the third quarter of 2023 compared to last year's strong Barbie sales.

Sales are expected to remain relatively flat in the fourth quarter despite a more challenging retail calendar, with major brands expected to gain share and retail shelf space during the holiday season.

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The new price target of $26 is based on 16-17 times projected 2025 EPS, compared with the previous multiple of 18 times 2024 EPS estimates. This valuation reflects confidence in Mattel's future performance and its strategic initiatives.

Investment Professional Insights

Following a positive assessment from BofA Securities, Mattel's financial health and market performance provide additional insights into the company's current position. The company's market capitalization is $6.76 billion, reflecting its outsized influence in the industry. Mattel has modest operating debt levels and is able to maintain liquid assets in excess of its short-term debt, which may help the company have the flexibility to manage its finances. Additionally, analysts are bullish on Mattel's profitability, predicting that the company will remain profitable this year, a sentiment supported by the company's trailing twelve month results.

Mattel's price-to-earnings ratio is 22.73, and its adjusted price-to-earnings ratio for the past 12 months as of the first quarter of 2024 is 20.53. Mattel's valuation indicators show that investors expect profit growth. The company's gross profit margin during the same period was as high as 48.67%, in line with the gross profit margin growth highlighted in its most recent quarterly report. Additionally, Mattel's commitment to reinvesting in its business is evident as it currently does not pay dividends to shareholders, which could provide room for future expansion and product development.

For a deeper understanding of Mattel's financial condition and performance metrics, interested investors can explore more Investment Professional Tips Tailor-made for Mattel from InvestingPro.Use coupon code PRONEWS24investors who subscribe to Pro and Pro+ annually or every two years can receive an additional 10% discount, unlock a total of 5 InvestingPro Tips, and conduct a more comprehensive analysis of Mattel's investment potential.

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