Mattel (MAT) is a leading collection of brands focused on children, with significant exposure to toys and games but also to digital media. The company is remarkably similar to its smaller rival,Hasbro (HAS). The stock trades at a slight discount to the market, but with strong growth prospects. I estimate that MAT could trade to 50.50 over the next year, which would represent a total return of 27%.
Based in El Segundo, CA, MAT, which was incorporated in 1948, has iconic brands like Barbie,Hot Wheels and American Girl. It breaks its business into three different segments, including Mattel Girls and Boys Brands (Barbie, Polly Pocket, Monster High, Matchbox, Hot Wheels, Tyco R/C and “Entertainment” that includes CARS, Toy Story, WWE Wrestling and Batman), Fisher-Price Brands and American Girl Brands. While its easy to see that many of these are toys, what some miss is that the company has extended the brands into the digital world through movies andsoftware.
The company’s growth strategies, created to achieve its vision of “creating the future of play”, include core brand extension through entertainment partnerships, building new franchises (like Monster High, which it created internally) and expanding internationally, margin expansion through cost-savings initiatives (with a >50% GM target long-term), and value-enhancing capital deployment. International sales were just 44% in 2012 and represent one of the largest opportunities.