Feb

25

Hasbro v. Mattel, from anonymous

February 25, 2015 |

Mattel showed up on one of my screens yesterday because it's stock price is at a 3+-sigma (long term) divergence versus competitor, Hasbro.

This is an interesting company for a variety of reasons. But a key question facing a contrarian buyer is whether the franchise value/moat built on key brands (e.g. Barbie, Fisher-Price, American Girl) is in secular decline. The company currently has no CEO and a key Disney licensing deal expires next year. They reported a truly dismal fourth quarter. All of this is in the stock price. The stock yields 6% which tells us that Mr Market believes it will be cut. They announced a new product with Google and the market yawned. Presumably the stock will pop on the appointment of a solid new CEO who will then take kitchen-sink writeoffs, cut the dividend, restructure, and start anew. But as always, timing is everything and the stock could be a lot higher (or lower) by the time all of this new news is digested.

Mattel is also facing macro/demographic headwinds (but presumably so is Hasbro which is doing quite well). Remember also that Jill Barad made a dismal acquisition of LeapFrog years ago and there were aborted takeover talks when they tried a ?hostile? acquisition of Hasbro. Mattel and Hasbro dominate this industry.

Is this a value trap or opportunity? And if MAT is a value trap, does that mean HAS is a short too? I'm not expressing any opinion except that there is no obvious reason why MAT should outperform the SPX over the next ____ days unless they announce a new CEO that Mr. Market loves. Would be interested in other insights and especially from Tim and the other "value" folks.

Here are the comparative valuations from Bloomberg:

Mattel:

P/E=16 (on distressed earnings)
Yield: 6.0%
P/S= 1.4
EV/T12Ebitda= 7.1
Ebit/Tot Int Exp= 8.2
Mkt cap= 8.6B
EV = 9.7B

Hasbro:
P/E=19.5
Yield=3%
P/S=1.9
EV/T12Ebitda=11.0
Ebit/Tot int exp=6.8
Mkt cap=7.8B
EV=8.8B

anonymous writes: 

My daughter wanted a new doll, so we went to Toys-R-Us. The Barbies were on sale for $6. But she wanted the $30 Frozen doll. I offered her 5 barbies but she declined. The no-brand dolls were going for $2. Clearly, offering for a discount doesn't change demand much — and perhaps the same for the stock price.

She is a 3 year old educated consumer too — I asked her why, and she said the head turns and the eyes are hypnotic. She can't read the package, but she has already watched the commercials.

 


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  1. anand on February 26, 2015 1:05 pm

    I don’t think you can look at a child’s willingness to buy something in isolation as they have to buy through a parent who acts a filter. Parents may well say take the $2 doll as we cant afford it, or the Mattel one instead of the frozen doll.

    The business looks like its in contraction as children have migrated to playing with electronic toys, namely computer games of increasing sophistication. These were a reserve of boys but increasingly have be developed with girls in mind too (the dance games being a good example). In addition internet surfing (god help us) and social media such as facebook have drawn children away from traditional toys. In my opinion if Mattel leverages off its IP and product through clever development in these fields they will enjoy a resurgence.

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