The holiday shopping season is coming, and soon attention will turn to the hot toys every child wants for Christmas. 

Aside from being a retailer’s dream, these hot seasonal toys hold the potential to take the manufacturer’s shares skyward. Investors in LeapFrog Entertainment were thrilled in 2011 when the company’s LeapPad, one of the first digital mobile devices for kids, got huge sales leading into the holiday season.

#-ad_banner-#One toy maker has already started to see shares surge this year on momentum in its turnaround plan, with cost savings of more than $153 million in 2015 alone. 

The company also just overhauled one of its biggest brands. The toy accounts for nearly 20% of total sales and has the potential to see big buying this holiday season.

Investors may want to give themselves an early Christmas present before the company’s toys are sold out this holiday.

Iconic Brands And Cost-Cutting Turn This Toy Maker Around
Shares of Mattel Inc. (Nasdaq: MAT) had been recovering since September of last year, and jumped 14% on the company’s fourth quarter earnings in February. Management delivered $153 million in cost savings last year and stabilized sales as part of a multi-year turnaround. 

The $11.5 billion toymaker controls 17% of the U.S. market, more than any other competitor, and has one of the most recognizable product lines in the world.

After two years of falling revenue, shipments for core brands jumped in the last quarter of 2015 as new releases and positioning helped to revitalize the company. Shipments over the Q4 2014 period increased for several of the company’s largest brands including Thomas & Friends (29%), Hot Wheels (28%), Fisher-Price (11%) and Barbie (8%). 

Retailer inventories of Mattel toys are the lowest they’ve been in three years, which should help to boost shipments this year, especially ahead of the holiday shopping season.

Mattel has also been one of the few American retailers to book real success in the emerging Chinese market. The company booked double-digit growth and marked its first year completely designing and developing a new product line in the country.

The company has recently developed its digital strategy by signing partnerships with Google, YouTube, Nickelodeon and ToyTalk. Sales should also see a boost from some headline licensing deals on Toy Story 3, Cars 3 and with DC Comics over the next two years.

Barbie Has A New Look
The biggest potential for the shares is in a shakeup of the company’s 57-year old Barbie brand. Sales of the brand fell for four consecutive years and accounted for just under 20% of total sales in 2015. That could change this year after the company announced the release of 33 new Barbie dolls, including four different body types and seven skin tones. 

It’s a huge move for a brand that has always been criticized for its one-size-fits-all body image. Being more representative of the population could bring toy buyers back in a wave this Christmas. It was estimated that 95% of all American girls aged three to eleven had at least one Barbie in the 90s. Many of those girls are mothers now, and could introduce the brand to a whole new generation. 

Besides the potential for stronger revenue growth, management is projecting an additional $130 million in cost savings for 2016 through lower expenses and an improved gross margin. The high end of the 15% to 20% operating margin target through 2017 is double the current margin.

Mattel generated more than $480 million in free cash flow over the last year and is targeting between $800 million and $1 billion in balance sheet cash by year end. That’s nearly 8% of the market cap in cash, and could revive the share buyback program in addition to its 4.5% yield. 

Management reiterated its commitment to shareholder cash return in the annual report. More than $3.5 billion was returned to shareholders over the five years through 2015, with just over a third of that coming through share buybacks.

Shares trade at 27.9 times trailing earnings of $1.19 per share. Earnings are expected to jump 23% over the next four quarters to $1.46, and could soar much higher if Barbie sales surge this Christmas. My price target of $37 is based on slightly higher earnings and a 25-times multiple, for an 10.2% gain on top of the dividend.

Risks To Consider: Execution risks still remain on management’s turnaround plan, and the shares could be volatile around earnings reports.

Action To Take: Take a position in Mattel before the holiday shopping season on the potential for a revamped product line to take the shares higher.

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This article originally appeared on TopStockAnalysts.com: This Toy Leader’s Turnaround Could Net You Big Gains