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Mattel: Superman And Batman Battle A Rich Valuation

Summary

We think Mattel will follow in Hasbro's footsteps and surprise investors with strong revenue growth behind sales of Batman, Superman, and Wonder Woman figurines.

Although a divergence in MAT and HAS begun in 2013, we think that divergence is about to end with the emergence of the DC Cinematic Universe.

The consensus revenue estimate is $861 million, but we think revenues will come in around $890 million.

While we do think there is upside to analysts' estimates, we think investors should remain cautious about the extended valuation and recent run-up in stock price.

Toy manufacturer Mattel (NASDAQ:MAT) is set to report 1Q16 earnings Wednesday, 4/20, after the bell. This ER comes on the heels of a very strong report from Hasbro (NASDAQ:HAS) wherein the fellow toy manufacturer topped estimates behind sales of Disney princesses driving revenue in the girls category up 41% Y/Y. We think MAT is also in store to surprise investors with strong revenue growth behind sales of Batman, Superman, and Wonder Woman figurines. Analysts are looking for $861 million on the topline, but we think revenues will come in around $890 million. Despite our expectation for a revenue beat, we remain tempered by the premium valuation.

These two stocks could not be on more divergent paths. The divergence started in mid-2013, when HAS announced a licensing deal with Disney (NYSE:DIS). In 2014, HAS announced another major victory when it secured licensing rights for the Disney Princess line, ending a 20-year exclusive partnership with Mattel. Interestingly enough, then, the revenue tailwind from the Disney Princess line for HAS is a significant headwind for MAT. Disney Princess revenue represented roughly 10% of MAT's total gross sales, so management expects this lost revenue to...


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