Barbie’s owner, Mattel, Inc. (NASDAQ:MAT), dropped nearly 6.6% in one day. Even after the drop, Mattel is now up around 18% since the beginning of the year. Famous investors, including Joel Greenblatt, Tom Gayner, and Jim Simons currently have Mattel, Inc. (NASDAQ:MAT) in their portfolio. Should investors consider the recent drop in Mattel’s stock price a good investment opportunity? Let’s find out.
Sluggish second-quarter earnings results
The drop was due to Mattel, Inc. (NASDAQ:MAT)’s sluggish second-quarter earnings results. In the second quarter, Mattel generated nearly $1.17 billion in revenue, 1% higher than last year. In terms of its core brands, Barbie was down the most with a 12% decline, while global worldwide sales of the American Girl brand increased 14%.
Its operating income came in at only $94.8 million, a 28% decline from the operating income of $131.4 million in the second quarter of 2012. Its net income experienced a drop of 24%, from $96.2 million, or $0.28 per share, to $73.3 million, or $0.21 per share. The lower income was due to higher selling & administrative expenses.
During the second quarter, Mattel, Inc. (NASDAQ:MAT) returned $119 million to its shareholders by repurchasing 2.7 million shares. Investors might be excited with the company’s plan. In the third quarter, the company would pay investors $0.36 in quarterly dividend per share. Moreover, the share repurchase program has been raised by $500 million, marking a share buyback yield of 3.3% on a total market cap of $15 billion.
Mattel, Inc. (NASDAQ:MAT) is trading at around $43.30 per share with an EBITDA (earnings before interest, taxes, depreciation, and amortization) multiple of 12. Investors also get a sweet dividend yield of 3.1%.
How about Hasbro and JAKKS?
Compared to its peers Hasbro, Inc. (NASDAQ:HAS) and JAKKS Pacific, Inc. (NASDAQ:JAKK), Mattel, Inc. (NASDAQ:MAT)’s valuation is in between the two. Hasbro is the cheapest company among the three. At $46.40 per share, Hasbro, Inc. (NASDAQ:HAS) is worth $6 billion on the market. The market values Hasbro the cheapest, at only 8.7 times its trailing EBITDA. Hasbro generated most of its revenue from two main product categories, Boys and Games.
In the first quarter of 2013, the Boy category generated most of its revenue, $243 million. Hasbro, Inc. (NASDAQ:HAS) has been trying to simplify its product portfolio, planning to reduce 40% items by 2015 and 30% SKU reduction in the period of 2011-2015. It targets as much as $100 million in net savings by 2015, including $55 million in workforce reduction, $20 million in process improvement, $15 million in facility consolidation, and $10 million in expense reduction. Income investors might like Hasbro with its good dividend yield of 3.4%.