Mattel: The Turnaround Is Here

Dec. 31, 2020 12:10 PM ETMattel, Inc. (MAT)HAS, NFLX4 Comments
Carles Diaz Caron profile picture
Carles Diaz Caron
867 Followers

Summary

  • Sales have been stagnant for a very long time, but have shown a substantial increase during the third quarter.
  • The company is adapting all its brands to digital media and releasing new content at a fast pace.
  • This should reverse the negative trend and open a new era of growth.
  • The dividend has been canceled and is not expected to return in the medium term.
  • The company is a buy for the long term at this price.

Investment thesis

Mattel (NASDAQ:MAT) has experienced a long period of declining sales and has been going through a digitization process of its brands to recover ground lost in recent years. Their brands are very strong and have great potential in digital media, but it is a process that will likely take years to take shape before recovering lost sales. In parallel, the comeback of Toys 'R' Us could boost this recovery phase.

In the pipeline, we have a large number of films and series that will be released on well-known platforms such as Netflix (NFLX), as well as YouTube channels that will idly collect profits from visits by children who watch one video after another through the tablets that parents lend them, with an ad in between. The inclusion of YouTube in new TVs around the globe will also help this passive income to slowly increase. Also, new videogames are expected to be released, and there is still potential for new games to be announced soon given the strength of brands.

The company canceled the dividend in 2017, and this allowed the company to generate cash again. Even so, still very low sales have made it difficult to reduce net debt, so the consolidation of the recent increase in sales will be necessary for this reduction to be possible. The balance sheet is currently overleveraged and the management is committed to deleveraging it, which will only be possible in the short term if the Christmas campaign brings good results this year.

A reduction in losses during the off-season quarters suggests the company will be able to pay off debt little by little from here, freeing up new resources to grow in the future, especially now that there is no dividend expense. Also, the company is slowly improving margins, which will allow the generation of cash

ChartData by YCharts

ChartData by YCharts

ChartData by YCharts

ChartData by YCharts

This article was written by

Carles Diaz Caron profile picture
867 Followers
Subscribe for an average ~20% return per year according to Tipranks. I am a long-term Dividend Growth Investor always looking for new opportunities in the stock market since 2015. In order to find good deals in the stock market, I look for companies that are going through a bad time and carefully assess the chances that the financial situation will return to the path of profitability and growth. My objective is to find stocks that can be bought and held for many years and try to get them for the lowest price possible during temporary headwinds. For me, the most important aspects when analyzing a stock's turnaround chances are that the company's products are essential to a big portion of the population, healthy and stable profit margins, a sustainable debt and dividend, and a long-term trend that suggests the products and services offered will continue to be essential for the decades to come.

Disclosure: I am/we are long HAS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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