Disney (DIS -0.45%) and Mattel (MAT 0.67%) are both storied household names in America, but their stock prices have gone in opposite directions over the past five years. Disney's stock rallied roughly 50% as the growth of its movie and theme parks businesses offset the slowdown in its cable network business.

Mattel's stock plummeted nearly 46% as poor sales of American Girl, Fisher-Price, and Thomas & Friends brand toys overwhelmed its stronger brands. The bankruptcy of Toys R Us also cast a dark cloud over the toy market. Today, we'll take a fresh look at both stocks to see if Disney will continue outperforming Mattel throughout 2020.

A model dressed up as a Barbie doll.

Image source: Getty Images.

Disney: Rising revenues, rising expenses

Disney splits its business into four main units: media networks (36% of its 2019 revenues); parks, experiences, and products (38%); studio entertainment (16%); and direct-to-consumer (DTC) and international products (13%). The total percentage exceeds 100% due to inter-company eliminations.

Disney's total revenue rose 17% annually to $69.6 billion last year. Its media revenues grew 13%, its parks and products revenue rose 6%, its studio revenues climbed 11%, and its DTC and international revenues more than doubled. However, those results were significantly boosted by Fox's media revenues in the second half of the year.

Yet Disney's net income from continuing operations fell 17% to $10.4 billion in 2019, as the costs of integrating Fox's assets and expanding its streaming ecosystem weighed down its margins. Its adjusted EPS declined by 19%.

Mattel: Sluggish revenue growth and narrower losses

Mattel splits its business into three main operating segments: North America (50% of its revenues in first nine months of 2019), international (46%), and American Girl (4%). Its North American and international sales rose slightly during that period, but sales of American Girl dolls declined.

Mattel also reports its revenue in four product categories: dolls (32% of its revenues in the first nine months); infant, toddler, and preschool products (26%); vehicles (22%); and action figures, building sets, and games (20%). Sales of all its product lines -- except infant, toddler, and preschool products -- rose annually during that period.

Mattel's strengths -- which include Barbie, Hot Wheels, and licensed Toy Story products -- slightly offset its weaknesses and boosted its net sales by 1% annually to $3 billion in the first nine months of 2019. It also narrowed its net loss from $543 million to $214 million. For the full year, analysts expect Mattel's revenue to stay flat and its loss to narrow.

The main headwinds

2020 will be an unpredictable year for both companies. Disney will only release two Marvel movies this year, marking the first year since 2016 the studio released fewer than three movies. It also won't release any new Star Wars films in 2020.

Instead, it will pivot both franchises toward Disney+ with streaming series like The Falcon and the Winter Soldier and The Mandalorian. Disney+ gained over 10 million subscribers on its launch day last November, but much of that growth likely came from free trials. It's unclear if Disney+ can maintain that momentum, and it will likely keep operating the platform at a loss for the foreseeable future.

Disney+ on a TV.

Image source: Disney.

Meanwhile, integration costs for Fox's assets should rise as its cable networks continue to lose viewers to streaming platforms. The ongoing spread of the Wuhan coronavirus, which already prompted the closures of its Shanghai and Hong Kong theme parks, will also throttle its theme park business.

Mattel will focus on nurturing the growth of top brands like Barbie, Hot Wheels, Toy Story, and Polly Pocket. It will expand Fisher-Price overseas to offset its weaker domestic growth, and streamline Thomas & Friends for an aggressive turnaround effort.

The toymaker will also focus on boosting its margins with its "structural simplification savings" plan -- which includes eliminating redundancies, scaling back weaker product lines, tightening its marketing budget, and building its brand awareness through digital platforms and other media channels instead of traditional ads.

Those plans sound encouraging, but Target's weak holiday sales report -- which it partly blamed on flat growth in toys -- is sparking doubts about Mattel's quest to end five straight years of revenue declines.

The valuations and verdict

Analysts expect Disney's revenue to rise 17% this year, and for its earnings to dip 6% on rising expenses. That's a tepid growth rate for a stock that trades at 23 times forward earnings, but its valuation prices in its future growth from Disney+, Fox's assets, and new theme park attractions like Galaxy's Edge. It also pays a forward dividend yield of 1.3%.

Analysts expect Mattel's revenue to rise 2% in 2020 as it squeezes out a slim profit. Mattel's stock trades at about 120 times that earnings estimate, but also trades at less than one times next year's revenue -- which makes it a fairly cheap stock. Mattel suspended its dividend in 2017 and hasn't announced any plans to reinstate it.

Disney and Mattel are both solid companies, but the House of Mouse easily tops the toymaker. It has a better-diversified business, more irons in the fire, and it pays a decent dividend. Its stock might be a bit frothy now, but it could easily rally higher over the long term as its new growth engines kick in.