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Why Shares of Mattel Are Slumping Today

By Timothy Green - Oct 31, 2017 at 11:57AM

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An analyst doesn't think a buyout is very likely.

What happened

Shares of toy maker Mattel (MAT -0.94%) slumped on Tuesday, driven in part by an analyst note suggesting that the company is unlikely to be an acquisition target. Mattel stock tumbled last week after an abysmal third-quarter report, rebounded on Monday after an analyst talked up the prospects of a takeover, and is now heading downward once again. Shares were down about 10% at 11 a.m. EDT.

So what

Linda Bolton Weiser, an analyst with D.A. Davidson, threw cold water on speculation that Mattel could be a viable buyout target. Weiser admits that the company has valuable consumer products brands, but she doesn't believe Mattel brands like Barbie and Hot Wheels would be appealing to an entertainment or media conglomerate. Weiser reiterated an underperform rating on the stock, along with a $12 price target.

Hot Wheels Stunt and Go Truck play set.

Image source: Mattel.

This comes soon after an analyst at BMO Capital Markets suggested that Mattel's manufacturing assets and brands could be worth $10 billion, about twice the current market capitalization. That analyst has a buy rating on the stock, along with a $20 price target.

The ups and downs of the past few days were preceded by Mattel's disastrous third-quarter report. Revenue tumbled 13% year over year, hurt by the bankruptcy of Toys R Us, and the company eliminated its dividend in an effort to preserve cash.

Now what

A buyout of Mattel doesn't seem impossible, but there are some hurdles. First, the company's performance has been dreadful, and any acquirer would need to figure out how to turn around Mattel's struggling brands. Second, the balance sheet is far from pristine, with about $2.6 billion of total debt.

As always, investors should try to block out the day-to-day noise of analyst comments. Mattel's fundamentals and growth prospects, or lack thereof, are what matter.

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