Mattel vs. Hasbro: Which Company Boasts the Best Toy Story?

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As manufacturers of traditional toys cede their product power to kid-friendly tablets, phones and even quad-copter drones, toy manufacturers like Mattel, Inc. (NASDAQ:MAT) and Hasbro, Inc. (NASDAQ:HAS) are scrambling to protect and grow their lines of business.

Hasbro185Since the toy manufacturing industry is changing rapidly, the burden is on investors to choose wisely.

U.S. retail sales of toys generated $18 billion in 2014 compared to $17.5 billion in 2013, an increase of 4% according to The NPD Group. That said, investing in toy stocks is not all fun and games as HAS and MAT stock have discovered recently. Let’s examine the U.S. toy industry’s top two public companies to determine which stock is the better play for investors now.

Business

Mattel has had a pretty tough week — Wall Street is expecting grim earnings news from MAT on Friday, and the ouster of veteran CEO Bryan Stockton over the weekend won’t help matters. Stockton, a 14-year Mattel veteran who has led the company for the past three years, could not survive the 60% year-over-year plummet in Q4 net income, nor company’s 7% sales decline for the full year. Former PepsiCo CEO and 18-year Mattel board member Christopher Sinclair will lead MAT in the interim.

The 70-year-old toy maker’s iconic Barbie stumbled and Fisher-Price brand product sales declined. Two bright spots had been Mattel’s rights to Walt Disney Co’s (NYSE:DIS) lucrative Frozen franchise and the popularity of its American Girl brand.

Rival Hasbro, which reports earnings on Feb. 9, is on stronger footing — particularly after winning the rights to manufacture Disney Princess dolls (including the Frozen line) beginning in 2016. Disney Princesses alone racked up some $4 billion in annual sales for Mattel.

Hasbro’s Transformers, My Little Pony and Nerf product lines helped HAS grow brand revenue by 36% in the third quarter. To revitalize its game and puzzle sales, HAS launched an 80th anniversary edition of its Monopoly game.

Earnings

Mattel suffered a fourth quarter earnings miss on Friday. Wall Street had expected earnings per share of 96 cents, but Mattel delivered only 44 cents per share of MAT stock, down nearly 60% year-over-year. The company also missed on the top line, with revenues of $1.99 billion, below analysts’ expected $2.16 billion.

Hasbro will report its fourth-quarter and full-year results on Feb. 9 and Wall Street is expecting EPS of $1.26, compared to $1.12 for the same quarter a year ago.

Fundamentals

Mattel stock hit a new 52-week low this week driven down by CEO Bryan Stockton’s resignation and weak preliminary fourth-quarter financials. MAT stock is down a whopping 29% over the past year. Mattel’s weakness is apparent in its price to earnings growth (PEG) ratio of negative -2.8, which is consistent with a 21.5% decline in quarterly earnings growth. However, MAT stock’s current dividend yield of 5.4% is very attractive.

Conversely, HAS stock has gained 16% over the past year. Hasbro has a PEG ratio of 1.4, which suggests that the stock is slightly overvalued, but it has impressive quarterly earnings growth of 42% year over year. The current dividend yield of 3.1% is lower than MAT’s but still attractive.

MAT Stock vs. HAS Stock — Winner

Hasbro comes out on top. Some of the biggest advantages that HAS brings to the table are impressive revenue and profit growth, strong operational cash flow and continued improvement in year-over-year return on equity.

Mattel is facing considerable challenges, beginning with the need to find a CEO who can foster innovation in the company, while controlling costs and optimizing brand value. Although both toy makers need to respond to the growth trend toward electronic devices, MAT stock must act quickly to salvage the ending of its Toy Story.

As of this writing, Susan J. Aluise did not hold a position in any of the stocks named here.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/02/mattel-vs-hasbro-company-boasts-best-toy-story/.

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