Solid Execution at Narrow-Moat Mattel Leads to Medium-Term Profit Upside; Shares Fairly Valued

With results as quantitative evidence, it appears narrow-moat Mattel’s turnaround has been largely completed. The company’s fourth-quarter sales growth of 10% (to $1.8 billion) and adjusted operating margin of 15% indicate products are enticing consumers, particularly in dolls and action figures, building sets, and games, where the category billings increased 13% and 25% as reported, respectively. Full-year 2021 put up a whopping 19% sales growth, a 14% adjusted operating margin (up 440 basis points over last year) and only 80 basis points of gross margin pressure, despite logistics, inflation, and other cost headwinds. We plan to increase our $25 fair value estimate by a high-single-digit percentage, and view shares as fairly valued after a 10% pop post print.