Morgan Stanley analyst Brian McGough on Thursday initiated coverage of toy companies Hasbro Inc. and Mattel Inc. with neutral ratings.

For Mattel, Morgan Stanley:

• Estimates 2000 EPS of 65 cents.
• Projects 2001 EPS of 78 cents, 2002 EPS of $1.03.

• ``We see a recovery for Mattel, following the worst year in its history. We believe that the company will make slow but steady improvements over the next two years.''

• ``We anticipate that Mattel, in addition to cutting costs, will end poorly structured licensing agreements and unprofitable product lines.''

• ``We expect slower growth but accelerating long-term profit at Mattel. Near-term earnings expectations might be tough for the company to achieve. We project that earnings will accelerate in 2001.''

• ``The company also should be affected by challenges to the entire industry. Higher fuel and resin costs and a tight supply of semiconductors make Mattel management's job that much tougher, in our opinion.''

Mattel shares were unchanged at $11-5/8 in midday trading on the New York Stock Exchange on Thursday. The stock has a 52-week high of $15-5/16 and a 52-week low of $8-15/16.

For Hasbro, Morgan Stanley:

• Estimates 2000 EPS of $1.02.
• Projects 2001 EPS of $1.20, 2002 EPS of $1.40.

• ``We consider Hasbro shares inexpensive by any measure. We believe that the stock should be trading closer to $16, but we can't find a catalyst to get it there, and it might be dead money for a few quarters.''

• ``Industry cost pressures have created a hurdle. Higher fuel and resin costs, as well as a tight supply of semiconductors, have added an element of uncertainty to performance in the next few quarters, in our view.''

• ``Hasbro also is facing tough financial comparisons. Last year and this year, Hasbro had three of the hottest products in the industry, which either have lost or are losing momentum.''

Source: Reuters

[Posted 10/06/2000]