We are reiterating our Buy rating and $30 price target for JAKKS Pacific after meeting with management and reviewing the anime/manga/VTuber initiative and viewing preliminary product offerings. We believe: 1) the new initiative offers material longer term growth opportunities and the ability to drive higher margins and overall returns; 2) the nature of the new business (highly international and more collector driven) should help reduce, longer term, the company’s dependence upon movie properties and the key domestic mass market retailers, further even out seasonality and shift the sales mix lower in terms of the Freight on Board (“FOB”) model; and 3) the company focus on authenticity and ability to expand the offerings beyond figures will be a key differentiating factor, as JAKKS Pacific expands the partner base and territories. We left impressed with the potential and believes that, in the longer term, the anime/manga/VTuber initiative will be a key game changer for JAKKS Pacific. That said, we believe the marketing ramp for the 2027 launch and a somewhat return to normalcy in terms of expenses, after cuts to somewhat unsustainable levels in 2025, will negatively impact near term margins; as such, we are lowering our 2026 EPS to $2.39 (from $3.59) and 2027 EPS to $3.01 (from $3.83) while leaving our revenue projections unchanged. We note our $30 price target now translates to 10X our 2027 EPS; as such, with the long term looking increasingly bright, we reiterate our Buy rating on JAKK.
