Stock Strategist: Mattel's Turnaround Too Slow for Investors

[Morningstar Logo]( [Company Site]( [Company News]( [Membership]( [Portfolio]( [Stocks]( [Options]( [Funds]( [ETFs]( [Markets]( [Tools]( [Personal Finance]( [Discuss]( Stock Strategist Mattel's Turnaround Too Slow for Investors We think the shares are undervalued, but the road to improvement could be rocky. [tab_bar] by Jaime M. Katz, CFA | 2/25/2019 5:30:00 PM While the messaging surrounding [Mattel]( [MAT]( structural simplification plan and the monetization of its robust intellectual property hasn’t changed, the cadence of improvement appears to be slower than investors had hoped for, as the share price tumbled after the company’s recent analyst meeting. Mattel’s resurrection has been on a protracted path since 2017, and we don’t anticipate the pace to accelerate as the secularly slow-growing toy industry--where we see growth around 3% on average--remains a headwind to the successful execution of the cause. Nearly every metric that Mattel offered regarding 2019 guidance was both disappointing and lighter than our prior forecast. First, while constant-currency sales are forecast to be flat, foreign exchange is anticipated to provide a 75-basis-point headwind at the midpoint, implying that Mattel is set for its sixth year of as-reported sales declines; this is below our projected 3% sales rise and marks sales at about two thirds of 2013 levels. Second, the gross margin outlook for the low 40s was short of our 45% estimate, hurt by input costs and currency. Finally, a slightly positive level of adjusted operating income is well below our $284 million estimate. At first glance, adjusting our projections more closely to align with Mattel’s updated guidance doesn’t materially alter our $21 fair value estimate. To read more, click [here](. Sponsored Links [Buy a Link Now]( New: ETF Managed Portfolios Center On [MorningstarAdvisor.com]( Tap into the industry's best source of information on ETF strategies for financial advisors. See key performance data, screen for specific strategy attributes, and learn more about this fast-growing area of the investment marketplace. [Click to get started](. Free Issue | Morningstar's Stock Newsletter >> Morningstar StockInvestor is celebrating more than 10 successful years of high-quality stock investing. Its two real-money portfolios have outperformed the S&P 500 since 2001. [Get new ideas for the core of your stock portfolio]( ). Search Most Recent Articles MORNINGSTAR STOCKINVESTOR HAS CONSISTENTLY BEATEN THE S&P SINCE 2001 and generated real wealth for subscribers by purchasing quality stocks when they are trading on the cheap and holding them until better opportunities arise. Get a complete blueprint for how to put our proven strategy to work for you with StockInvestor. Click to order! Latest Analyst Reports [Antero Resources]( [Ametek]( [Realty Income]( [Cenovus Energy]( [Grupo Aeroportuario del Pacifico]( ABOUT OUR EMAIL TO UNSUBSCRIBE this email address to the Stock Strategist newsletter, please click "reply" and then click "send." This will unsubscribe only this email address to this specific newsletter. All subscription changes will take effect within one business day. Replies are not read by individuals, so please do not use this for queries about Morningstar.com. If you have questions about Morningstar.com or your membership, send a note to [joe@morningstar.com](mailto:%20joe@morningstar.com). ABOUT OUR PRIVACY POLICY Please [click here]( to learn about Morningstar's privacy policy. (c) Copyright 2019. Morningstar, Inc. 22 West Washington Chicago, Illinois, 60602 All rights reserved.