JPMorgan has moved Mattel Inc. (NASDAQ: MAT) to an Underweight rating from Neutral and materially trimmed its valuation outlook, lowering its price target to $14.00 from $23.00. The firm frames its action around what it describes as an "investment year" for the toy maker, during which Mattel plans to increase spending to reinvigorate its product pipeline.
As part of that strategic shift, JPMorgan says Mattel will allocate $110 million to digital games initiatives and an additional $40 million toward performance marketing. Those investments are intended to restart the companys innovation engine, but JPMorgan sees them as a drag on short-term financials.
The bank pointed to several near-term challenges that underpin its more cautious view. Mattel and retailers are engaged in inventory clearing, and the company faces difficult content comparisons in the first half of 2024. JPMorgan expects activity to pick up later in the year as high-profile titles such as Toy Story 5 and Masters of the Universe reach market, supporting a second-half recovery.
In setting its target, JPMorgan established a December 2026 price objective of $14 based on a 7x EV/EBITDA multiple applied to its 2026 forecasts. The bank notes that 7x sits in the lower half of Mattels historical trading range of 6-9x, reflecting its more conservative stance on valuation given the near-term pressures.
JPMorgan also observed that broader tax stimulus leaves it generally constructive on consumer spending, but that the toy categorys results are heavily dependent on the second half of the calendar year - a timing mismatch that exacerbates the immediate headwinds Mattel faces.
Those headwinds were evident in Mattels recent quarterly report. The companys fourth-quarter 2025 earnings per share came in at $0.39, below the $0.54 consensus estimate, amounting to a 27.78% negative surprise. Revenue for the quarter totaled $1.77 billion, missing the expected $1.85 billion by 4.32%.
Management attributed the shortfall to a slowdown in retailer replenishment orders in December, which prompted inventory clearing actions by both Mattel and its retail partners. In the aftermath of the results, DA Davidson cut its price target to $18.00 from $25.00 but elected to keep a Buy rating on the stock, characterizing the earnings outcome as a "big miss."
Together, the downgrade, the reduced valuation multiple and the companys quarterly shortfall paint a cautious near-term picture for Mattel, even as the firm puts resources behind longer-term growth initiatives in digital and marketing efforts.