Refocusing Mattel Isn't Child's Play

Over the past few years,

Performance of key brands, including Wheels and Fisher-Price (Core and Friends) and entertainment (53% of sales all together), has already begun to deliver solid and sustained constant currency results, indicating that new product relevance seems to be on the right track. We recently raised our fair value estimate to $33 per share from $32 as we expect improved cost leverage in the selling and administrative ratio next year, benefiting from higher sales (our forecast includes 6% revenue growth versus an average of 0% as reported over the past five years) thanks to the Cars 3 launch midyear. Lighter foreign exchange headwinds and a lower advertising ratio lead to about a 230-basis-point increase in operating margin to 13.5% in 2017 from 11.2% in 2016. With shares trading at a 15% discount to our fair value estimate and in 4-star territory, we view the stock as undervalued.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.