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Bull of the Day: Funko (FNKO)

Tracey Ryniec

Funko, Inc. (FNKO) has shown it is more than just Fortnite as overall sales surged during the holiday season. This Zacks Rank #1 (Strong Buy) was considered a "fad" when it went IPO in 2017 but earnings are expected to jump more than 34% in 2019.

Funko makes pop culture consumer products, including vinyl figures, action toys, plush, apparel, housewares and accessories for consumers who have favorite pop culture brands and characters.

This includes movie, television and book characters, and sports figures, including popular coaches.

Another Beat in Q4

On Feb 28, the company reported its fourth quarter results and beat the Zacks Consensus estimate by 10 cents. Earnings were $0.39 versus the consensus of $0.29.

It was the company's 5th beat in a row. It hasn't missed on earnings since its 2017 IPO.

Net sales rose 38% to $233.2 million for the quarter while gross profit rose 29%.

Its gross margin, however, decreased 260 basis points to 36.7% due to higher shipping costs in order to meet demand for the products.

For the year, net sales rose 33% to $686.1 million.

What About the Fornite Craze?

Funko rolled out Fortnite toys in the fourth quarter, just in time for the holiday season. And although investors were obsessed with the Fortnite story for the last two quarters, that line remains a small percentage of overall sales.

In the fourth quarter, Fortnite was 12% of sales. For the year, it was 5%.

The company is diverse, with many popular product lines. It's evergreen products also continue to sell well.

Board Games and Books

Funko continues to expand its product base beyond toys.

On Feb 15, Funko announced that it had acquired Forrest-Pruzan Creative LLC, a board game development studio, for an undisclosed amount.

It will operate as Funko Games. The company said it will have no material impact on results for 2019.

On Mar 6, Funko announced it would be releasing a series of books based on its Wetmore family characters exclusively with Barnes & Noble starting on June 15, 2019.

It will be showcasing the books, in partnership with Sterling Publishing, at both the London Book Fair and Bologna Children's Book Fair. The Pop! Monsters include Bugsy Wingnut, Tumblebee, Butterhorn, Snuggletooth and others.

Estimates Revised Higher on Strong Guidance

Funko guided for 2019 net sales in the range of $810 million to $825 million. That's a gain of 18% to 20%.

It also sees earnings in the range of $1.05-$1.15.

Analysts are bullish on the company, with 1 estimate revised higher since the report.

The Zacks Consensus Estimate for 2019 has jumped to $0.91, up from $0.79 before the report. That's a gain of 34.3% from 2018 which saw the company make $0.68.

But that is still under the $1.05-$1.15 guidance range so look for further higher analyst estimate revisions soon.

Shares Pop on the News

Like many stocks, Funko sold off to end 2018 but has been slowly rising in 2019.



But the solid earnings report sent the shares surging higher. They've gained 35% year-to-date.

They're also surprisingly cheap for a growth stock with a forward P/E of just 17.6 and a PEG ratio of 1.0.

For those looking for a company on the cutting edge of popular culture, Funko should be on your short list.

[In full disclosure, the author of this article owns shares of FNKO in her personal portfolio.]

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