Bank Of America Likes Funko After 2019 Guidance Raise

Funko Inc FNKO shares are moving higher despite delivering a mixed second-quarter earnings report on Thursday.

Second-quarter adjusted earnings came in at 25 cents per share, better than the analyst consensus estimate of 7 cents. Sales came in at $191.2 million, beating estimates by $20.51 million. Funko also raised 2019 sales guidance, which lifted shares.

The Analyst

Bank of America analyst Alexander Perry reiterated a Buy rating and raised his price target from $27 to $29.

The Thesis

Perry believes channel inventory remains clean as the company’s sell through at its largest U.S. customers was up 21%, with sell-in increasing 16% in the second quarter.

The analyst is forecasting 24% revenue growth in 2019 supported by continued wholesale strength, led by momentum in the specialty channel, and as retailers allocate more shelf space to the company, including GameStop Corp. GME, Barnes & Noble, Best Buy Co Inc BBY, Walmart Inc WMT and Foot Locker, Inc. FL

Perry also says Funko is taking the right steps to mitigate tariff impacts.

“We expect ~50 basis point headwind to gross margin in F4Q but see potential offsets including cost negotiations with manufacturers and wholesale partners (expected to partially absorb the impact without retail price increase given current favorable Funko unit economics,” he wrote in a note.