Shares of toy maker Mattel (MAT -1.12%) surged on Monday, erasing the loss suffered last week following the company's disastrous third quarter. Speculation about a possible takeover seems to be the main driver. The stock was up about 11.5% at 3:45 p.m. EDT.
A report from Gerrick Johnson, an analyst at BMO Capital Markets, suggested that Mattel could be a takeover target after its dismal results. Mattel's third-quarter earnings report featured a double-digit revenue decline, a steep drop in earnings, and the suspension of the dividend. The Toys R Us bankruptcy was a major headwind, but Mattel has been facing weak demand for its core brands for years.
Johnson believes Mattel's manufacturing assets and brands could be worth more than $10 billion in a sale, about double the company's current market capitalization. Shares of Mattel have plummeted 55% since mid-2016, as the company's long-awaited turnaround failed to materialize.
Johnson has a price target of $20 on the stock along with the equivalent of a "buy" rating.
Investors should remember that this talk of a takeover is purely speculation. A buyer would need to figure out a way to turn around the company's struggling brands, something that Mattel has failed to do over the past few years.
Investors willing to bet on a risky turnaround play should put Mattel on their radars. But the hope of a buyout shouldn't be the only reason for buying the stock.