Maxim Group initiated coverage on shares of JAKKS Pacific (NASDAQ:JAKK), a company within the $28 billion toy market, with a Buy rating and a price target set at $46. The firm highlighted the company's position in the industry, noting its growth prospects and efficient business model.
JAKKS Pacific, known for selling licensed toys from popular franchises such as Disney, Sonic the Hedgehog, and Super Mario Bros., has demonstrated resilience by relying on well-recognized content rather than transient trends. The majority of the company's revenue comes from sales through major retailers like Target, Walmart (NYSE:WMT), and Amazon (NASDAQ:AMZN).
The company's return on invested capital (ROIC) has exceeded 25% in both 2022 and 2023, with expectations that a 10% or higher ROIC is sustainable.
For the year 2024, the analyst forecasts lower sales and EBITDA for JAKKS Pacific but projects a return to full-year growth in 2025. As of the end of the second quarter of 2024, JAKKS had $17.9 million in cash and $5.0 million in debt. The firm's free cash flow (FCF) outlook suggests a yield of 25% in 2024 and 14% in 2025, which is expected to provide sufficient capital for the company's operations and growth initiatives.
Currently, JAKKS Pacific's shares are trading at a price-to-earnings (P/E) multiple of 6.4 times Maxim Group's 2025 earnings estimate. This is notably lower than the peer median P/E multiple of 13.4 times. The $46 price target set by Maxim Group is based on a discounted cash flow (DCF) analysis and implies a P/E multiple of 12.5 times the firm's 2025 earnings forecast.
In other recent news, JAKKS Pacific reported mixed results for the second quarter of 2024. The company's total revenue for the quarter was $148.6 million, reflecting an 11% decrease from the previous year.
JAKKS Pacific's international sales also decreased to $16.5 million due to supply chain disruptions in Europe, which have now been resolved. However, the company has announced several new initiatives and product launches, such as The Simpsons toy line and Wild Manes IP, which are expected to drive growth.
The company has successfully paid off all its debt and is exploring capital allocation strategies. There are plans to expand into European markets, particularly with Pokémon costume rights.
InvestingPro Insights
As Maxim Group sheds light on the potential of JAKKS Pacific in the toy industry, real-time data from InvestingPro offers further insights into the company's financial health and stock performance. According to InvestingPro, JAKKS Pacific (NASDAQ:JAKK) has a market capitalization of $257.58 million, with a P/E ratio that stands at 8.49, reflecting a valuation that is below the industry average. This could indicate a potentially undervalued stock, aligning with Maxim Group's optimistic view.
An InvestingPro Tip highlights that JAKKS Pacific's liquid assets surpass its short-term obligations, suggesting a solid liquidity position that may support its operations and growth initiatives. Additionally, the company operates with a moderate level of debt, which could allow for financial flexibility in strategic investments. Moreover, analysts predict the company will be profitable this year, a sentiment echoed by the recent positive return on assets of 7.57% over the last twelve months as of Q2 2024.
InvestingPro also notes a strong return of 25.54% over the last three months, indicating a recovery trajectory after the stock took a significant hit over the last six months. While the company does not pay a dividend, its stock price performance and the potential for profitability may be of interest to investors seeking capital appreciation. For those interested in a deeper dive, there are additional InvestingPro Tips available at https://www.investing.com/pro/JAKK, providing a broader view of JAKKS Pacific's investment profile.
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