Shop Talk

Two analysts expressed mixed views about Mattel’s near-term outlook, a day after the world’s largest toy maker posted a slightly lower third-quarter profit due to charges stemming from its recent global recalls of potentially dangerous toys.

“We believe investors may have breathed a sigh of relief, fearing results could have been worse,” BMO Capital Markets analyst Gerrick Johnson wrote in a research note.

“However, we think investors could still be in for a rocky ride and expect fourth-quarter results to be weak,” wrote Johnson, who has an “unperform” rating on Mattel’s stock.

Johnson also said that while Mattel is close to completing its inspection process, ”we do not believe the worst is over the company on the recall front.”

So far, Mattel has recalled about 21 million toys because of lead paint and hazards posed by small magnets.

For Wedbush Morgan Securities analyst Sean McGowan, Mattel’s outlook is far rosier.

“The majority of the costs and sales disruptions from recalls, testing and other supply chain initiatives have now been recognized,” McGowan wrote in a research note.

“We do expect fourth-quarter results to show some additional ‘extraordinary’ costs … but we believe these incremental costs will be measurable in pennies per share,” wrote McGowan, who has a “buy” rating on Mattel’s shares.

McGowan also said “Mattel’s growth prospects remain strong, its cash flow is enormous and improving and its market share is rising.”

The company’s results would have met or exceeded McGowan’s expectations excluding the added costs and supply chain disruptions caused by this summer’s recalls.

(Photo Source: Reuters)