We rate the shares of RC2 Corp. (RCRC) a Hold, following the release of third-quarter results. The quarterly results fell short of our expectations, in part attributable to the economic slowdown.

Our $13.00 six-month target price for RC2 Corporation is based on a multiple of 8.5x our 2008 earnings estimate. The company's peer group is currently trading at an average P/E multiple of 10.4x 2008 earnings estimates. First quarter 2008 results were disappointing, with year-over-year sales declines in each of the company's major segments.

RCRC management cited continued softness at the retail level as a primary reason for its disappointing results. Second quarter 2008 results were in line with our expectations, though down versus the prior year. In the third quarter, earnings again fell short of our and Street expectations. We had been encouraged by the announcement of the CPD acquisition, and had expected the deal to provide long-term benefits to RCRC.

Our previous earnings estimates had incorporated the immediate accretion to earnings as an offset to deteriorating performance in the company's core business. We recently lowered our estimates to account for the termination of the CPD acquisition. We consider a discounted multiple, relative to the peer group average, to be appropriate at this time. Our target multiple of 8.5x our 2008 earnings estimate is at the low end of the company's historic valuation range.