Zacks toys and games analyst Sean P. Smith takes the recall activities and other information into consideration before issuing a Hold rating to RC2 Corporation (RCRC), a leading toy and collectibles company:

'Although the company's Q3 results exceeded our previously lowered expectations, we have other concerns about the company too. We believe that the market will be hesitant to apply a significantly higher multiple to the shares in the near-term, in light of the recall activities and ongoing concerns related to consumer spending going forward.

'Our $21 six-month target price for RC2 Corporation is based on 9x our 2008 earnings estimate. The peer group is currently trading at an average P/E multiple of 10.1x 2008 earnings estimates, with larger peers Hasbro (HAS) and Mattel (MAT) trading at an average multiple of approximately 11x projected 2008 EPS.

'We believe that the multiples currently afforded to toy companies are somewhat constrained following the recent recall events in 2007, as well as concerns regarding consumer spending going forward. In the case of RC2, however, the operating results are also showing weakness as a result of the popular product lines currently available from competitors.

'That said, the company's Q3 results were better than expected, excluding the costs associated with the recalls. Given these issues, we derive our $21 price target by applying a multiple of 9x our 2008 EPS estimate of $2.36. As such, we rate the shares a Hold at this point in time. We will further update our model and outlook following the release of Q4 results in February.'