Why Do All Those Street Kids Love Mattel?

Don't mistake the recent advance in Mattel for the usual seasonal play in toy stocks. The buying since July is more than just a Christmas fancy, assert some pros who have been quietly building stakes in the world's largest toymaker. They think Mattel, now at 33, is way undervalued.

One pro says the smart-money crowd has been eyeing the field and that Mattel is becoming the big favorite. "The toy industry is on the verge of a recovery," says this pro, "and the pure plays in it are but a handful." He has been buying Mattel shares because the company "is a rare global leader with a widely known franchise including the perennially popular Barbie doll in an industry that is consolidating."

U. S. toy sales have been sluggish in the past several years, but sales in Europe and Asia have been growing fast. "The strong will get stronger," says investment manager Harold Levy of Arnhold & S. Bleichroeder. "With its increasing cash flow and earnings momentum, Mattel now has all it takes to emerge as a strong industry leader."

'OUTSTANDING.' Some industry analysts agree. Prospects for improved results in the second half of this year and all of 1992 "are quite solid as Mattel's core products continue to capture increasing shelf space at retail stores, particularly in such giant retailers as Toys 'R' Us, Kmart, and Wal-Mart Stores," says Steve Eisenberg, Oppenheimer's leisure-industry analyst. He just raised his 1992 estimate to $2.75 a share, vs. an estimated $2.30 for 1991 and last year's $1.80. And he thinks his projections may be too conservative since Mattel has been boosting operating earnings per share by 15% this year--"an outstanding achievement in a difficult economy."

Eisenberg believes that when the economy rebounds, Mattel will surprise the Street with much higher results than analysts are expecting. For one thing, his estimates don't reflect the potential of Mattel's new line of toys aimed at boys, including American Gladiators, a line of figures based en the syndicated game show, and Hook, an action character based on the Steven Spielberg movie adaptation of the Peter Pan story. Currently, toys for boys account for only 15% of sales. "This market has a lot of growth ahead," says Eisenberg.

He thinks Mattel's market share overseas, which accounts for 52% of revenues, will grow more robustly as the industry shrinks. Barbie, which had worldwide sales of $740 million last year, could produce more than $800 million this year, Eisenberg figures.