On Tuesday, B.Riley initiated coverage on JAKKS Pacific (NASDAQ: JAKK) stock with a Buy rating and a price target of $37.00. The firm highlighted the company's readiness for an anticipated sales pivot, despite current industry challenges. JAKKS Pacific has been recognized for maintaining a solid sales foundation with its evergreen products and for strengthening its balance sheet over recent years.
The analyst from B.Riley pointed out that the broader toy industry is currently facing headwinds due to macroeconomic pressures affecting consumer spending and the impact of Hollywood strikes on content-led product development. However, they believe these obstacles are temporary and that JAKKS Pacific is well-prepared for growth once these issues subside.
JAKKS Pacific's management has made strategic improvements anticipating a sales turnaround, according to B.Riley. The company's focus on evergreen products—which are less susceptible to trends—provides a steady revenue stream. This, combined with the company's improved financial health, positions it for both organic growth as content production increases and inorganic growth through expanding its product lineup.
B.Riley's price target of $37.00 suggests a significant upside of approximately 58% from the current levels. The target is based on a below-average target AEBITDA multiple compared to peers, which the firm considers a conservative estimate. The analyst's outlook implies confidence in the company's potential for growth in the near future.
In other recent news, JAKKS Pacific has reported mixed results for the second quarter of 2024, with a total revenue of $148.6 million, indicating an 11% decrease from the previous year. Despite the overall dip, the doll and role-play division saw a net sales increase of 6.6%.
However, the Action Play & Collectibles business experienced a significant decrease of 30.5% in net sales. Maxim Group has initiated coverage on JAKKS Pacific with a Buy rating and a price target set at $46, highlighting the company's growth prospects and efficient business model.
The company's return on invested capital has exceeded 25% in both 2022 and 2023, with expectations that a 10% or higher ROIC is sustainable. Furthermore, JAKKS Pacific has successfully paid off all its debt and is exploring capital allocation strategies, with plans to expand into European markets, particularly with Pokémon costume rights. These are recent developments concerning JAKKS Pacific.
InvestingPro Insights
As B.Riley initiates coverage on JAKKS Pacific with optimism, real-time data from InvestingPro corroborates the company's promising financial position. JAKKS Pacific's market capitalization currently stands at $261.53 million, indicating a mid-sized player in the industry with room for growth. The company operates with a moderate level of debt and has managed to maintain a solid P/E ratio of 8.63, which is further refined to 9.15 when adjusted for the last twelve months as of Q2 2024. This reflects a valuation that may attract investors looking for reasonably priced earnings potential.
InvestingPro Tips highlight the company's financial agility, with liquid assets surpassing short-term obligations, which is a reassuring sign for investors concerned about short-term liquidity. Additionally, JAKKS Pacific has demonstrated a strong return over the last three months, with a 26.65% price total return, outpacing many competitors and potentially rewarding investors who have stayed the course despite market volatility.
With a fair value estimation by analysts at $35.00 and InvestingPro's fair value slightly lower at $32.38, there appears to be a consensus that the stock is undervalued. This aligns with B.Riley's assessment and price target of $37.00. For investors seeking further insights, InvestingPro offers additional tips on JAKKS Pacific, which can be found at https://www.investing.com/pro/JAKK.
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