Jakks Pacific Upgraded to Neutral - Analyst Blog
04 Dezembro 2012 - 6:30AM
Zacks
We recently upgraded our
recommendation on Jakks Pacific Inc. (JAKK) from
Underperform to Neutral. While we are concerned about the stock
following a host of factors like decelerating margins, top- and
bottom-line miss in the third quarter of 2012, unfavorable product
mix and wage inflation in China, we believe that these negative
factors have already been factored in the current stock price.
Jakks Pacific cut its fiscal guidance, prior to the third-quarter
earnings, owing to a tough retail environment. We believe this is
already priced in the current valuation.
We believe that the strong product launches, possible acquisitions,
strategic partnerships, resolution of litigation and strong
finances make Jakks Pacific well-positioned for long-term growth.
Over time, JAKKS Pacific has not only emerged as one of the top
five U.S. players in toys and leisure products, but also created an
identity as a more diversified consumer products company.
Jakks Pacific has been taking initiatives to strengthen its
international business. Monsuno, an animated series, is an
important overseas property for the company. Based on the Monsuno
television venture, the company developed a complete Monsuno toy
line. Although, Monsuno’s performance in the U.S. failed to match
expectations, its global acceptance was encouraging.
Management is all set to tap international opportunities with the
Monsuno toy line in countries like U.K., Italy and Australia. Jakks
Pacific also signed an exclusive agreement allowing the sector
behemoth Mattel Inc. (MAT) to distribute its
Monsuno toys to the Eastern European territories, including
Hungary, Czech Republic, Slovakia, and Poland beginning the spring
of 2013.
From a financial standpoint, the company remains in good health. We
believe that an abundance of cash in its balance sheet ($140.8
million in the third quarter of 2012, 19.1% of total assets) will
allow the company to successfully execute additional acquisitions
going forward.
Furthermore, the ongoing fourth quarter is seasonally stronger for
the retailers due to the holiday season. Thus, we expect the
company to do better business in this period by employing a
tactical approach.
Among its holiday collections, Winx Club will play a pivotal role.
Winx fall sales, across major accounts, were in line with
management’s expectation. Based on the initial success, retailers
enhanced their fall 2012 promotional support which in turn should
help Jakks Pacific.
Consequently, given the pros and cons, we adopt a Neutral stance on
the stock. Jakks Pacific also holds a Zacks #3 Rank that translates
into a short-term ‘Hold’ rating.
JAKKS PACIFIC (JAKK): Free Stock Analysis Report
MATTEL INC (MAT): Free Stock Analysis Report
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