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LeapFrog Enterprises, Inc. (LF), Mattel, Inc. (MAT): The Evolving Dynamics of the U.S. Toy Industry

During fiscal 2012, Hasbro reported net income of around $336 million, or $2.55 per diluted share. Revenue was marginally above $4 billion. The company’s board of directors declared a quarterly cash dividend of $0.40 per common share. Likewise, Mattel reported net income at around $776.5 million, or $2.22 per share on net sales of $6.4 billion.

Mattel, Inc. (NASDAQ:MAT) and Hasbro, Inc. (NASDAQ:HAS)’s market share positions are presently estimated at around 16% and 11%, respectively. However, both companies have struggled to incrementally develop and create innovative electronic toys for children. Unlike its competitors, LeapFrog with its focus on electronic gadgets, has carved out a niche of its own.

Possible buyout target?

LeapFrog is a potential buyout target for either Mattel or Hasbro given that both players are expected are expected to launch product lines to initiate new trends in the U.S. toy market

LeapFrog, with its promising product range, makes an excellent strategic buyout target for both Mattel, Inc. (NASDAQ:MAT) and Hasbro. It is understood that both companies have operating cash greater than the market cap of LeapFrog. The majority of LeapFrog’s shares are held by institutional investors; thus, a buyout would occur at a significant premium over the present market value of the company. Hence, buying LeapFrog’s stock at current levels could prove highly profitable if a buyout materializes.

The Foolish bottom line

I believe LeapFrog Enterprises, Inc. (NYSE:LF)’s stock may be  undervalued and overlooked. In the present scenario, sales of electronic gadgets are expected to grow exponentially. I believe LeapFrog is in an ideal position to capitalize on the escalating demand for digital toys.

Additionally, a foray into the international markets should contribute to the top line of the company. The stock promises strong appreciation going forward, thus, investors with a long-term horizon should include this stock in their portfolios.

The article The Evolving Dynamics of the U.S. Toy Industry originally appeared on and is written by Kiran Gulati.

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