If you think toys are family household necessities, you have to think about Mattel (NYSE:MAT). And if you’re an investor, you have to love the shares of the world’s largest toymaker, whose management acts as concerned about its shareholders as about producing the most attractive products.
Little wonder that its stock has been a stellar performer, hitting record highs almost every year since early 2009, when it traded as low as $10 a share. It has more than tripled since, closing at $32 on Feb. 23, 2012.
That begs an urgent answer to the inevitable question: Has the stock peaked? Tough question, but the answer: Far from it. Some analysts look at $38 to $40 a share as the price to expect over the next 12 months. But investors should remember that apart from producing probably the best toys in the industry, Mattel is also a juicy dividend play, paying a hefty yield of 4%.
That means investors have been rewarded with handsome total returns as the toymaker continues to build up its earnings, capacity and expansion worldwide. That’s a major reason why the stock is ranked No.1 in “timeliness” in Value Line’s stock ranking system, a top category seldom seen in the independent investment research company’s stock classification survey.
Apart from appealing to investors seeking stellar stock performance, Mattel also attracts the conservative “income investors,” notes Value Line analyst Mario Ferra, “thanks to the stock’s attractive dividend yield and comparatively low risk profile.” And the company continues to enhance shareholder value. Mattel recently boosted the quarterly dividend by 35%, and management has indicated that it will continue to target a payout of 50% to 60% of per-share earnings.
Mattel’s earnings have recovered nicely from the depths of the 2008 recession, notes Ferra, with income hitting a record high of $2.18 a share in 2011, powered by strong sales growth overseas, strength in its core toy brands led by its flagship product Barbie (whose sales last year jumped 12%), continuing cost cuts and share repurchases. It bought back 20.4 million shares in 2011.
Among its product winners are Monster High, the rapidly growing fashion-doll franchise now on its third year, and its lineup of toys based on Disney (NYSE:DIS)-Pixar’s Cars, which have had their biggest year yet. And with Mattel’s recently completed purchase of HIT Entertainment, it added the toys Thomas & Friends, Barney, and Bob the Builder to its already large product lineup. They’ll start contributing to Mattel’s bottom line in 2013, figures Ferra. The HIT products generate annual sales of $180 million, he notes.
In the international markets, Mattel is continuing to expand its reach. Sales have been particularly strong in Brazil and China — and even in Europe, Ferra says. Brazilian sales jumped 14%, to nearly $1 billion last year. Mattel’s total sales in 2011 was a record $6.26 billion, compared with $5.85 in 2010.
Also bullish on Mattel is Scott W. Hamann, analyst at KeyBanc Capital Markets, who says his recent meeting with Mattel CEO Bryan Stockton and Chief financial Officer Kevin Farr gave him more confidence in his optimistic outlook for the toymaker. “While core products have resonated well and [management's] execution has been exceptional in recent years, Mattel still has a host of opportunities in the coming years,” says Hamann.
The turnaround at its Fisher Price unit, the integration of HIT Entertainment, persistent growth in the international markets and additional cost reductions in operations “could be meaningful going forward,” says Hamann. “We continue to view Mattel as a core holding,” he adds, reiterating his buy recommendation.
Analysts’ earnings estimates for Mattel in 2012 range from $2.30 to $2.50 a share, and for 2013 from $2.62 to $2.90, up from 2011 earnings of $2.18.
This global giant toymaker is also a solid stock for, well, all seasons.