Buy Recommendation By Justin Ivory and Ryan Powell

Toy Industry Up to 2006

CARR up 2. 2% 0 to 10 Group 90% of Mattel’s Revenue Comes From This Segment Population Growth

2005 Article: Growth Continues in Mass/Discount Channel and Online Toy Sales RETAIL SALES IN THE U. S. TOY INDUSTRY DECLINED LESS THAN FOUR PERCENT IN 2005 to just over $21. 3 billion compared to $22. 1 billion generated the prior year, according to The NPD Group. Retail channel performance shows continued share growth in the Mass/Discount channel. The mass marketers and discounters represented 54 percent of total toy sales in 2005, while Toy Stores represented 20 percent. Online toy sales continued to increase as well, generating over $1. 3 billion in 2005, a 2. 6 percent increase over the prior year, and accounting for approximately 6 percent of sales for the year. ALTHOUGH TOTAL TOY INDUSTRY SALES DECLINED IN 2005, MANY CATEGORIES, such as Building Sets and Learning/Exploration toys, PERFORMED VERY WELL, showing positive sales growth over the prior year. n addition, ENTERTAINMENT FRANCHISES LIKE DORA THE EXPLORER ARE DRIVING TOY SALES, and the Star Wars franchise has contributed to both the Action Figures and Building Sets categories. While some categories dropped in sales, there were still some impressive increases among some sub-categories. Although the Dolls category had a dollar sales loss of two percent in 2005, various sub-categories such as Large Dolls, and Soft Dolls showed healthy increases of 18 percent and 13 percent. THE GAMES/PUZZLES CATEGORY MAY HAVE DECLINED BY 9 PERCENT, BUT THE FAMILY BOARD/ACTION SUBCATEGORY GREW 18 PERCENT, ELECTRONIC HANDHELD/TABLETOP GAMES GREW 14 PERCENT and Puzzles were up by 4 percent over the prior year.

Company’s Future Focus • Growing Birth Rate Baby Gear • Children Health Movement The Smart Cycle: “Combining child fitness with learning and fun. ” • International Progress 10% International CAGR Since 2000 44% of Revenue From Outside of U. S. • Movie Licenses Batman Speed Racer Kung Fu Panda • American Girl Growth Movies New Stores • Product Cost and Quality LEAN Manufacturing Cut Product Costs w/ Steel Rather than Zinc

Lead Toys • Toy Recalls in mid- September have plummeted Mattel’s stock prices. • Recalls are slowing while Mattel has implemented the “Three Point Checking System” • "This Christmas could end up the safest one of all. “ That's the conclusion of an article about toy safety in the September 6, 2007 issue of Time Magazine focused on the cooperative efforts of TIA and lawmakers to develop tough new toy safety inspection systems - including a new proposed third-party testing accreditation program in partnership with the American National Standards Institute (ANSI).

Other News • The 2007 Holiday™ Barbie® Doll Anticipated to Top Lists this Gift-Giving Season EL SEGUNDO, Calif. (October 16, 2007) - The 2007 Holiday™ Barbie® doll, a much anticipated and cherished holiday gift for children and adults alike, is officially released to stores for this year's gift-giving season. The first holidaythemed Barbie® doll was introduced in 1988 and continues to be one of the most popular collectible Barbie® dolls today. The annual introduction of the holidaythemed Barbie® doll brings generations of girls, women and collectors together in celebration of both the holidays and Barbie®, a doll that has inspired girls of all ages to be anything they want to be for nearly five decades. Created by Mattel designer Sharon Zuckerman, the 2007 Holiday™ Barbie® doll is the newest addition to a long tradition of festive and beautiful, holiday-themed Barbie® dolls. This year's doll epitomizes holiday glamour with a Santa-inspired "Miss Claus" look. The 2007 Holiday™ Barbie® doll features a strapless, crimson velvet gown trimmed with white faux fur, black lace and accessorized with a black, wide Santa-inspired belt. Dazzling earrings and necklace as well as glamorous white opera-length gloves, complete the ensemble. "The 2007 Holiday Barbie doll is the ultimate holiday keepsake, combining the warmth and spirit of the season with the glamour and beauty of Barbie" said Liz Grampp, director of marketing, Barbie Collector.

Other News • Mattel Announces Voluntary Recall of Single Product (Oct. 29) EL SEGUNDO, Calif. , - Mattel, Inc. announced that, as a result of the company's extensive investigation of toys manufactured prior to the implementation of the three-point check testing system, the company has voluntarily recalled a production run of a single product sold in three markets due to impermissible levels of lead.

Key Ratios Mattel Industry P/E Ratio 14. 22 17. 22 Beta 0. 89 1. 20 Return On Equity 23. 93 25. 00 Return On Assets 11. 16 12. 39 Price to Sales 1. 27 1. 86 Gross Margin 46. 50 43. 30 Operating Margin 12. 85 16. 33 Net Profit Margin 9. 47 10. 53 Payout Ratio 44. 73 28. 49

10 Year Graph One Year Graph

Analysts (Other Than Motley Fool) Market. Watch. com Average Recommendation: Number of Ratings: FY Report Date: OVERWEIGHT 9 12 / 2007 Last Quarter's Earnings: 0. 61 Year Ago Earnings: 1. 37 Average Target Price: 28. 00 Current Quarters Estimate: 0. 74 Current Year's Estimate: 1. 50

3 Period Growth Model & Relative Valuation

Value Conclusions Analysts’ Price = 28. 00 Valuation Price = 21. 00 Earning 15% or 24. 15 Relative Valuation = 25. 21 (Average Return) Average Price of 3 Methods = 25. 79 or 23. 44%

Final Conclusions I expect this stock to rise as Christmas approaches with the potential of a gain greater than our 15% requirement depending on unforeseen events and a bullish market. Therefore, I believe Mattel (MAT) should be purchased at its present day price of $20. 89/share in a quantity of 300 to 500 share (depending on cash availability. ) It should then be expected to rise to approximately 24. 00/share (15% return) with a good chance that it will reach 25. 74/share (23. 44%) and with an approximate 19% chance it will rise to 28. 00/share (34% return. )

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