Digital Games Expansion And Hot Wheels Partnerships Will Expand Future Prospects

Key Takeaways

• Expansion into digital games and entertainment is expected to drive revenue growth and improve margins, enhancing overall financial performance.
  
• Diversification and operational efficiencies in the supply chain are anticipated to support robust net earnings despite external economic pressures.
  
• Potential revenue challenges from tariff impacts, high retail inventory, declining Dolls category sales, and slower growth in entertainment-related toy sales.

Catalysts

A toy and family entertainment company, designs, manufactures, and markets toys and consumer products in North America, Latin America, Europe, the Middle East, Africa, and the Asia Pacific.

• Mattel's emphasis on expanding its digital games self-publishing business points to future revenue growth opportunities in the digital sector, a higher-margin area compared to traditional toy sales, positively impacting earnings and potentially net margins.
  
• Continued momentum in the Vehicles category, particularly with Hot Wheels, supported by partnerships like Formula 1 and Ferrari, is anticipated to drive top-line growth, thereby increasing revenue.
  
• The company's strategic focus on expanding entertainment offerings, including multiple films in development and new TV shows, is expected to enhance brand visibility and drive consumer engagement, potentially leading to revenue growth and improved net margin performance.
  
• Mattel's supply chain diversification strategy and its ability to mitigate tariff impacts through operational efficiencies could improve or maintain gross margins despite external pressures, ultimately supporting net earnings.
  
• The commitment to significant share repurchases, totaling $600 million in 2025, is expected to enhance earnings per share (EPS) by reducing the share count, contributing to shareholder value.

Mattel Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Mattel's revenue will grow by 1.9% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 10.1% today to 10.0% in 3 years time.
• Analysts expect earnings to reach $570.2 million (and earnings per share of $1.93) by about March 2028, up from $541.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.2x on those 2028 earnings, up from 12.8x today. This future PE is lower than the current PE for the US Leisure industry at 18.2x.
• Analysts expect the number of shares outstanding to decline by 4.04% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.47%, as per the Simply Wall St company report.

Mattel Future Earnings Per Share Growth

Risks

• The anticipated impact of new U.S. tariffs on imports from China, Mexico, and Canada could introduce cost pressures and affect unit sales, potentially impacting net margins and operating income.
  
• Retail inventory levels are slightly elevated, which may negatively influence first-quarter sales and could lead to temporary sales declines, affecting quarterly revenue performance.
  
• The decline in Dolls category revenue, primarily due to reduced Barbie sales post-2023 movie release, may not be fully offset by other product lines, thus leading to potential revenue challenges.
  
• Price increases as part of the tariff mitigation strategy may affect demand elasticity, potentially impacting unit sales and gross revenues if not effectively absorbed by the market.
  
• The slower than expected normalization of the theatrical release schedule poses a risk to the anticipated growth in entertainment-related toy sales, which could impact overall sales growth targets.

Valuation

• The analysts have a consensus price target of $25.575 for Mattel based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $30.0, and the most bearish reporting a price target of just $21.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $5.7 billion, earnings will come to $570.2 million, and it would be trading on a PE ratio of 16.2x, assuming you use a discount rate of 7.5%.
  
• Given the current share price of $21.0, the analyst price target of $25.58 is 17.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.