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Mattel (MAT) at Risk of Cutting Dividend, But It's Priced In - Jefferies

January 5, 2016 7:41 AM EST
Get Alerts MAT Hot Sheet
Price: $19.72 -0.2%

Rating Summary:
    14 Buy, 10 Hold, 1 Sell

Rating Trend: Down Down

Today's Overall Ratings:
    Up: 13 | Down: 10 | New: 11
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Jefferies analyst, Trevor Young, sees Mattel's (NASDAQ: MAT) dividend at risk but thinks the stock price risk is already priced in.

Mattel's estimated $515m in dividends in FY15 exceeds the firm's FCF estimate of ~$450m (or ~114%), raising concerns about the sustainability of the dividend, particularly at early stages of its turnaround. Management is willing to exceed its target payout ratio "from time-to-time," and there is sufficient cash flow from ops. to cover the div. MAT has $1.6bn in backup credit available and leverage below peer levels, but total debt to unadj. EBITDA threshold of 3.0x (2.3x in FY14, 2.7x in FY15E) may limit MAT's ability to borrow in the S-T to cover shortfalls.

The analyst reviewed stock price performance before/after a cut for the 95 current S&P 500 constituents that have cut their div. at least once since '07. On average these companies underperform by -19% rel. in the 12 months before cutting the div., and then outperformed in the three (+10%), six (+20%), and 12 months (+33%) afterwards.

The analyst left his Buy rating unchanged because he sees revenue growth in FY17 and 200bps+ EBITDA margin opportunity. The $30 PT is based on 17x FY17 EPS.

For an analyst ratings summary and ratings history on Mattel Inc. click here. For more ratings news on Mattel Inc. click here.

Shares of Mattel Inc. closed at $27.43 yesterday.



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