It's Too Early to Buy Mattel (MAT) - Piper Jaffray

Piper Jaffray analyst, Stephanie Wissink, sees a multi year recovery for Mattel Inc. (NASDAQ: MAT), not an immediate one, but the payoff is $2 EPS In 2020E. Margin recoveries in toys are not parabolic despite optimism over Barbie data points. Estimates need to be reset and a dividend cut remains a possibility, especially if the company wants to execute a major refreshment of Barbie merchandising to accompany product changes. No change to Neutral rating or $22 PT.

Mattel is due to report Monday afternoon and we see the event as a critical point of potential transparency regarding the timeline to recover sales and earnings. A volatile reaction exiting the Q4 report would present a potential buying opportunity. We'd rather own knowing the negative news is exhausted and expectations are reasonable.

Checks throughout Nov and Dec countered the general belief that Mattel would leave the channel "full" of excess Princess inventory. Instead, channel inventory was significantly lacking and buyer contacts pointed to intentional demand diversion within the category toward Barbie.

The analyst expects currency exposure to impact sales by -6% in Q4, -7% for FY15 and -5% in FY16. Directional guidance for 2016 should indicate that sales are down M/HSD including FX (down L/MSD ex-FX) with EPS down slightly more than sales. This represents a significant divergence from the Street’s current estimates at LSD declines in revenue and 15%-20% increase in EPS Y/Y in 2016.

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 $26.97 yesterday.

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