Today’s new idea comes from the Argus Weekly Staff Report, and is followed by two sell alerts from Cabot Top Ten Trader.
“We are initiating coverage of Mattel, Inc. (MAT, Nasdaq) with a near-term BUY rating and a target price of $51. Mattel is successfully navigating changing tastes in the global toy market, with continued strong growth in American Girl and Monster High dolls. We are optimistic about the company’s ability to grow its top and bottom lines and expand margins in a period of global economic uncertainty.
“The company’s breakout first quarter shows positive signs for both 2013 and beyond. Our BUY recommendation reflects our view that Mattel will continue to see growth in both sales and earnings, driven by solid operational efficiency, product innovation, and growing end markets.
“Mattel is a solid cash generator characterized by high margins, minimal capital requirements, and short-cycle product lead times. Over the last few years, management has proven to be a superior allocator of capital, with a healthy emphasis on reinvesting earnings and returning capital to shareholders through dividends and buybacks.
“Mattel’s strategy has resulted in healthy long-term total returns for shareholders and we look for this to continue. Management is targeting total annual shareholder returns of 11%-13%, with six to eight percentage points from operating profit growth and the remainder from dividends and buybacks. Our model currently points to a 2013 dividend of $1.44, implying year-over-year growth of 16%.
“MAT’s fundamentals appear solid, and we look for continued strong sales and earnings as the company expands its growth franchises. The shares also appear attractively valued at current levels near $45, after pulling back from their all-time high above $48 in mid-May. Our long-term rating is also BUY.”
Jim Kelleher, CFA, Michael Burke and John Gelcius, Argus Weekly Staff Report, 212-425-7500, www.argusresearch.com, 6/13/13