What happened

Shares of troubled toy maker Mattel (MAT -0.70%) rose on Wednesday, gaining about 5.5% by 11:30 a.m. EDT. An analyst upgrade appears to be the driving force behind the rally. Mattel still has plenty of problems, but an analyst at Jefferies believes these risks are priced into the depressed stock price.

So what

Analyst Stephanie Wissink of Jefferies boosted her rating on shares of Mattel to "hold" on Wednesday, up from a previous rating of "underperform." Wissink still sees various risks, including the liquidation of Toys "R" Us and a delayed sales recovery. But she believes these risks are baked into the stock price.

A Mattel Hot Wheels set.

A Mattel Hot Wheels set. Image source: Mattel.

Shares of Mattel have been hammered in recent years, shedding about two-thirds of their value over the past five years. Weak demand for its core brands, a stifling conference-room culture, and an inability to adapt to a changing market for toys have contributed to this decline. Mattel had no shortage of problems prior to the Toys "R" Us bankruptcy. The loss of a major customer, accounting for more than 8% of annual sales, made a bad situation worse.

While the analyst upgraded the stock, Jefferies' price target was kept at $13 per share. That's about $1.25 lower than the current stock price.

Now what

Mattel's net sales slumped by 11% in 2017, with the rapid decline of Toys "R" Us playing a role. Mattel posted an operating loss of $343 million on $4.88 billion of revenue, down from an operating profit of $519 million in 2016. Mattel plans to cut costs this year as part of its $650 million cost reduction program, which could help the bottom line recover.

The beaten-down stock price certainly reflects some of Mattel's struggles. Whether it's beaten down enough to represent a good investment opportunity remains to be seen.