Mattel, Inc. (Nasdaq: MAT) stock has been on quite a run in the past couple of months, gaining more than 25 percent from its April lows. Unfortunately for Mattel investors, analysts see little evidence to suggest the company’s struggling business is improving.
D.A. Davidson analyst Linda Bolton Weiser has cut her revenue and profit forecasts for Mattel’s second quarter and says the company will likely report a larger-than-expected loss.
[See: 7 of the Best Stocks to Buy for 2018.]
“MAT has a hard [quarter] comparison due to the ‘Cars 3’ channel fill, and with the expected disruption and light shipments caused by the Toys R Us liquidation, we are lowering our [second-quarter estimated] sales to -13 percent from -5 percent,” Weiser says.
She says rising plastic resin prices have only added to Mattel’s problems. Resin spot prices are up roughly 30 percent in a little over a year and 2 percent since the first quarter. Weiser says investors can expect those rising costs to eat further into Mattel’s margins.
D.A. Davidson is calling for a second-quarter EPS loss of 31 cents compared to consensus expectations of a 24-cent loss. The firm has also lowered its revenue forecast by 8.2 percent from $925.8 million to $849.6 million. Weiser is projecting gross margin of 38 percent, below consensus estimates of 38.6 percent.
Weiser says the Toys R Us bankruptcy will continue to be a problem for MAT stock.
“MAT has continued to ship to [Toys R Us] in Asia, so the maximum sales loss in 2018 would be 6 percent of total sales, or $300 million, with a loss of $58 million in [the second quarter],” She says.
Looking further into the future, D.A. Davidson projects a full-year 2018 EPS loss of 23 cents. Weiser expects Mattel will return to modest profitability next year and projects 2019 EPS of 58 cents and 2020 EPS of 73 cents.
But even factoring in a return to profitability and a recovery in operating margins from 2.9 percent in 2018 to 9.4 percent in 2020, Weiser says MAT stock still looks way too expensive after its recent rally.
[See: 7 of the Best Dividend Stocks to Buy for 2018.]
MAT stock is currently trading at around 28.9 times 2019 projected earnings, well above the 16.8 forward earnings multiple of competitor Hasbro ( HAS).
D.A. Davidson has an “underperform” rating and $12 price target for MAT stock.
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Mattel, Inc. (MAT) Stock’s Rise May Be Short-Lived originally appeared on usnews.com
