Tami Zakaria initiated coverage of Mattel's stock with an Outperform rating and $17 price target.
The analyst simultaneously initiated coverage of Hasbro's stock with a Neutral rating and $113 price target.
The Toy Industry
The toy industry is poised to see a long-term mid-single-digit percentage global category growth for three key reasons, Zakaria wrote in the notes. These include increasing popularity of entertainment content transferring over to toy brands, parents focusing on childhood development and play-time and a rising middle class and favorable economic trends in emerging economies.
Mattel represents a compelling turnaround story that offers investors long-term value under the leadership of CEO Ynon Kreiz who brought in a new focus on stabilizing sales and restoring profit. The analyst said the company should be able to grow sales by a low-single-digit in 2020 as the new management team focuses on stabilizing key brands like Barbie and others.
Beyond 2020, toy sales could accelerate from Kreiz's strategy of leveraging the toy company's intellectual properties across eight movies and two Netflix shows, Zakaria said. The company should benefit from $900 million worth of run-rate savings by 2021 which implies a multi-year top-line, margin, and free cash flow recovery story.
Hasbro's stock valuation looks "full" at its current price of around 20 times P/E and 14 times EV/EBITDA on 2021 estimates, according to the analyst. These figures already assume an 80 cent per-share benefit from acquisition accounting, which isn't included in consensus estimates.
Shares of Mattel trade around $14.20, while Hasbro shares trade around $103.57.