Introduction

Toymaker Mattel has been identified as a potential shining star in the consumer market, even amidst uncertain economic conditions, according to a report by Morgan Stanley. The analyst, Megan Alexander, has bestowed an overweight rating on Mattel, considering it a top pick, and has set a price target of $27 per share, indicating a potential 27.2% gain over the next year.

Positive Outlook

Alexander acknowledges that the stock has already taken into account some negative factors associated with the challenging macroeconomic environment. However, she believes that revisions in expectations have not yet hit their lowest point. Despite the overall market landscape, Mattel continues to offer promising returns with manageable risks.

Mattel’s current trading levels are below its historical averages, which suggests the potential for revaluation both in absolute terms and relative to its peers. Alexander highlights three factors that she expects to contribute to Mattel’s positive performance: (1) positive revisions, (2) resilience in a deteriorating macroenvironment, and (3) effective monetization of its strong intellectual property following the success of the “Barbie” movie.

Earnings Estimations

Morgan Stanley predicts that Mattel will outperform the market with its earnings-per-share estimates for 2023 and 2024. The estimates are 11% and 8% higher than the consensus, respectively. These projections are primarily driven by expected improvements in gross margin and increased capital returns facilitated by Mattel’s robust balance sheet and growing free cash flow.

Market Performance

Pre-market trading has already seen a 1.9% increase in Mattel’s stock price. Overall, the stock has performed remarkably well this year, with a significant 19% surge. The success of the live-action “Barbie” film, which grossed over $1 billion globally, has played a major role in boosting the company’s valuation.

Challenges Ahead

Despite the optimistic outlook, Alexander acknowledges three potential headwinds that may affect Mattel’s revenue growth. These factors include negative unit trends, shifting consumer spending priorities, and moderating price tailwinds. The expiration of the student loan moratorium is expected to impact discretionary spending, particularly on durable goods, resulting in a decline in consumer goods consumption.

Additionally, Morgan Stanley’s economists predict a slowdown in consumer spending and a deceleration in services consumption. Nonetheless, Alexander remains confident in Mattel’s ability to navigate these challenges and ultimately deliver sustainable returns.

Note: This report includes contributions from AsumeTech’s .