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Mattel Shares Look Attractive for Long-Term Investors

Earnings will remain depressed short term as the narrow-moat toymaker invests in brands and operations before resuming more normalized earnings levels.

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Jaime Katz: After winding down inventory overhang from a weak holiday season, Mattel's recent investor day indicated it might take some time before the company's turnaround proves to be fully under way. 

With another $250 to $300 million in incremental investments planned to simplify the company's supply chain, invest in innovation, and build brand presence in emerging markets, we think benefits may not surface in Mattel's profit profile until 2019. With an incremental $150 to $200 million in cost savings the management team expects to harness ahead, on top of the $240 million in gross savings anticipated from the already under way Global Supply Chain program, we think the company can fund its strategic investments without adding leverage to its balance sheet. 

Jaime M. Katz does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.