Mattel Rises as Morgan Stanley Names it Top Pick

Mattel (MAT:US) shares jumped 3% on Wednesday after Morgan Stanley (MS:US) analysts named the stock a Top Pick in the firm’s research coverage of Leisure stocks. 

Analysts see a positive shift in fundamentals for Mattel, including the stabilization of topline trends and a recovery in gross margins. Moreover, Mattel is expected to benefit from higher capital returns due to a stronger balance sheet.

Morgan Stanley analysts highlight that as of 2Q23, the net debt-to-EBITDA ratio stands at 2.7x, compared to around 6x in 2019. This improved financial position is expected to drive higher free cash flow.

In the near term, the upcoming Q3 earnings report is seen as a positive catalyst that could lead to upward revisions in earnings estimates. Morgan Stanley’s EPS estimates for MAT are approximately 20% above the Street's consensus.

In addition to Mattel, Hasbro (HAS:US), Xponential Fitness (XPOF:US), and Planet Fitness (PLNT:US) are also rated as Overweight.

“Valuations appear reasonable, if not cheap, though we think the potential for lagging revisions makes it too early to get broadly constructive. These stocks typically don't bottom until estimates do,” Morgan Stanley analysts wrote in a note.

Mattel shares are up over 20% year-to-date. Congressman Ro Khanna was trading the stock in recent years, including the sale of March 14.

Similarly, Rep. Susie Lee sold some MAT shares late last year.