Mattel, Inc. (MAT) is trading higher by 3% in Wednesday's pre-market after beating fourth quarter top- and bottom-line estimates, underpinned by a robust holiday season. The toymaker took a decisive lead over Hasbro, Inc. (HAS) in the toy wars in 2020, lifting to a three-year high while its rival struggled to bounce back to pre-pandemic levels. That marked a turnaround from prior years, in which Hasbro's G.I. Joe franchise generated a series of new highs while doll enthusiasts turned their backs on Barbie and Mattel in favor of more modern female messaging.
- Mattel beat fourth quarter top- and bottom-line earnings estimates, powered by strong holiday sales.
- Mattel has outperformed Hasbro in the past year.
- Both toymakers have benefited from the pandemic.
- Mattel has entered the first uptrend since 2013.
Hasbro beat top- and bottom-line estimates as well, but Mattel posted stronger fourth quarter revenue growth, coming in at 10.3% year over year compared to Hasbro's 3.6%. Barbie and Hot Wheels powered Mattel's earnings during the quarter, growing 19% and 13%, respectively. At the same time, Hasbro relied on Monopoly and other board games to grow sales and embarked on a cost-cutting initiative to increase shareholder value.
The pandemic super-charged industry sales in the second half of last year as canceled vacations and closed recreation centers generated more "at-home" time. Parents responded with new toys and games in an effort to keep their kids occupied and save their own sanity. Unfortunately for bulls, 2020 growth may be hard to duplicate, with vaccines working their way around the planet and the expected return to normalcy in the second half of the year.
Wall Street consensus on Mattel now stands at a modest "Overweight" rating based upon six "Buy" and eight "Hold" recommendations. Analysts are equally bullish on Hasbro despite the lagging performance, with twelve "Buy," four "Hold," and one "Underweight" recommendation. However, Mattel stock is trading just $2 below the median $20 price target, while Hasbro is slumping badly, trading more than $18 below its median $108 target.
Shareholder value is the value delivered to the equity owners of a corporation due to management's ability to increase sales, earnings, and free cash flow, which leads to an increase in dividends and capital gains for the shareholders.
Mattel Weekly Chart (2000 – 2021)
The stock posted a multi-year low in the single digits in 2000 and turned higher, entering an uptrend that recouped about half the prior decline into 2007. It carved a higher low after the 2008 economic collapse and rallied into the new decade, completing a round trip into the 1998 high in the $40s in 2013. The subsequent breakout failed after posting an all-time high at $48.48, signaling a brutal downtrend that undercut the 2000 low during the pandemic decline.
The subsequent recovery wave ended the multi-year string of lower highs in December 2020 when price action mounted the February high in the mid-teens. The buying impulse broke out above the 200-week exponential moving average (EMA) at the same time, with both technical elements signaling the first confirmed uptrend since 2013. Further gains into February 2021 have mounted the 2018 and 2019 peaks, lifting Mattel to a two-and-a-half-year high.
Even so, the stock faces a long road to recovery. The rally still hasn't reached the .382 Fibonacci selloff retracement level, while the weekly stochastic oscillator has now crossed into a sell cycle that could limit gains into the second quarter. Taken together with 300% upside in the past year, sidelined investors with a multi-year holding period may wish to wait for a pullback that tests moving average support just above $15.
A stochastic oscillator is a momentum indicator comparing a particular closing price of a security to a range of its prices over a certain period of time. The sensitivity of the oscillator to market movements is reducible by adjusting that time period or by taking a moving average of the result. It is used to generate overbought and oversold trading signals, utilizing a 0–100 bounded range of values.
The Bottom Line
Mattel and Hasbro are trading higher after beating fourth quarter estimates, but both toymakers could struggle to duplicate last year's heathy industry growth rate.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.