MAT Mattel Inc

Based on consensus estimates, analysts expect low double-digit EPS growth over the next two years. On top of this, the company pays a dividend that yields a solid 3.6%.

And earnings estimates have been rising following the company's better-than-expected fourth quarter results. It is a Zacks #2 Rank (Buy).

Company Description

Mattel, Inc. is a leading toy maker with iconic brands like Barbie®, Hot Wheels®, Matchbox®, American Girl®, and Tyco R/C®, as well as Fisher-Price® brands, including Little People® and Power Wheels®.

The company was founded in 1945 and has a market cap of $11.6 billion.

Fourth Quarter Results

Mattel delivered better than expected fourth quarter results. Earnings per share came in at $1.07, well ahead of the Zacks Consensus Estimate of $1.01. This was a 20% increase over the same quarter in 2010.

Net sales rose 1% to $2.15 billion, driven by a 5% increase in international markets. Sales were down 2% in the U.S.

The Mattel Girls & Boys Brands business unit saw worldwide sales growth of 7%, including 6% for the Barbie brand. But this was somewhat offset by a 10% decline in the Fisher-Price Brands segment.

Meanwhile, operating income rose 16% year-over-year as the company expanded its operating margin by 290 basis points to 23.1% of net sales.

Outlook

Following strong Q4 results, analysts revised their estimates higher for both 2012 and 2013, sending the stock to a Zacks #2 Rank (Buy).

The Zacks Consensus Estimate for 2012 is now $2.42, representing 11% growth over 2011 EPS. The 2013 consensus estimate is currently $2.69, also equating to 11% EPS growth.

Analysts expect solid revenue growth from Mattel through both its core brands and newly developed ones, both domestically and abroad. And this, along with operating leverage from the company's recent cost savings program, should drive strong earnings growth over the next several years.

Returning Value to Shareholders

Mattel has a solid balance and strong cash flow, which has allowed it to return value to shareholders through stock buybacks and dividends.

During 2011 for instance, the company repurchased 20.4 million shares for approximately $536 million. And in February of this year, it increased its quarterly dividend by a whopping 35%.

Since 2003, the company has raised its dividend at a compound annual rate of 13%. It currently yields a stellar 3.6%.

Valuation

Valuation looks reasonable for MAT with shares trading at 13.5x 12-month forward earnings, in-line with its 10-year historical median. And its price to cash flow ratio of 12.4 is below the industry median of 14.1.

Also, its price to sales ratio of 1.8 is well below the industry median of 2.4.

The Bottom Line

With rising earnings estimates, solid growth projections, a juicy 3.6% yield and reasonable valuation, Mattel offers investors attractive total return potential.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Co-Editor of the Reitmeister Value Investor.

 
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