RC2 Corp.’s (RCRC) fourth quarter 2010 earnings missed the Zacks Consensus Estimate due to lower gross margin. We remain cautious on the stock due to increasing input costs pressure and currency fluctuation risk.
Moreover, competition from private label toys and video game industry is increasing. Additionally, ordering from retailers remains conservative, thus negatively impacting the sales of the company. Hence, we are downgrading the stock from Neutral to Underperform.
Our six-month target price of $19.00 equates with 9.9x our earnings estimate for 2011. With no dividend to supplement, this price target implies an expected negative return of 10.3% over that period, which is consistent with our Underperform recommendation.
RC2 CORP (RCRC): Free Stock Analysis Report
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