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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