Why Mattel Inc. Shares Could Keep Pulling Back

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Mattel  (NASDAQ: MAT  ) slipped 1% on Friday after Needham & Company downgraded the toy giant from buy to hold.

So what: Along with the downgrade, analyst Sean McGowan noted the stock is fully valued, suggesting little to no upside to the current price. So while contrarian traders might be attracted to Mattel's earnings-related plunge yesterday, McGowan's call could reflect a sense on Wall Street that its growth prospects are just too limited to trigger a significant rebound.

Now what: Needham lowered its 2014 and 2015 EPS estimates for Mattel from $2.35 to $1.75 and from $2.80 to $2.15, respectively. "Mattel reported a disappointing quarter that missed on nearly every operating metric and showed further deterioration in fashion dolls, notably in Monster High," said McGowan. "Expectations were low heading into the quarter following warnings of a weak 1H as the company continued to work through excess inventory, but the 8% decline in sales (14% excluding a recent acquisition) was well below our estimates. Despite improvements in POS, the weakness in Monster High leaves a gaping hole in both sales and margins that we believe will be difficult to fill." With Mattel shares flirting with their 52-week lows and currently boasting a near-4% dividend yield, however, those short-term concerns might be providing patient Fools with a juicy long-term income opportunity. 

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