Mattel Jumps 6% As 3Q Earnings Crush Expectations

Mattel shares surged 5.6% in after-hours trading on Thursday as the company smashed analysts’ expectations for the third quarter on strong demand for toys amid the pandemic.

Demand for dolls, including Barbie, action figures, building sets, board games, and other items like card games drove a 10.1% rise in Mattel’s (MAT) 3Q sales to $1.63 billion. The 3Q revenue growth marked a strong recovery from the 15% revenue decline in the previous quarter.

Adjusted EPS surged by an impressive 265% to $0.95 in 3Q due to higher sales and cost savings. Both top and bottom line came in significantly ahead of analysts’ expectations of revenue of $1.46 billion and EPS of $0.39.

With children stuck at home for a prolonged period due to the COVID-19 crisis, the demand for toys increased considerably in the third quarter. Notably, gross sales of Barbie brand rose 29% while Hot Wheels brand delivered a 7% growth. (See MAT stock analysis on TipRanks)

Looking ahead, Mattel’s CEO Ynon Kreiz said, “Based on the POS momentum we are seeing, the low retail inventories and the early start of the holiday shopping season, we expect Net Sales and Gross Sales to grow in the fourth quarter. Looking to the full year, with continued operational savings and margin expansion, we expect to see strong Net Income and EBITDA growth and remain focused on creating long-term shareholder value.”

Before the print, JPMorgan analyst Tami Zakaria increased her price target for Mattel to $17.50 from $15 and maintained a Buy rating. The analyst said that she expects Mattel to post “impressive upside” to margins and believes that the Street is underestimating its EBITDA for 2020.

The analyst noted that despite the recent run in shares, Mattel is still underperforming the S&P 500 Index by 15% year-to-date. She expects upside in the stock as she feels that the holiday outlook for the toy category remains “relatively optimistic.”

The Street is cautiously positive about Mattel with a Moderate Buy consensus based on 3 Buys, 1 Hold and 1 Sell. With shares down 4.4% year-to-date, the average analyst price target of $14.17 implies an upside potential of about 10% over the coming months.