For Immediate Release
Chicago, IL – January 25, 2019 – Zacks Equity Research Funko, Inc. FNKO as the Bull of the Day, Occidental Petroleum Corp. OXY as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Micron MU, Lam Research LRCX and Texas Instruments TXN.
Here is a synopsis of all five stocks:
Bull of the Day:
Funko, Inc. was considered a "fad" when it went IPO in 2017. But this Zacks Rank #1 (Strong Buy) is expected to see double digit earnings growth in both 2018 and 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.
Third Quarter Sales up 24%
On Nov 8, Funko reported its third quarter results and beat the Zacks Consensus Estimate by 4 cents. Earnings were $0.27 versus the consensus of $0.23.
This was the fourth beat in a row. It hasn't missed on earnings since its 2017 IPO.
Sales rose 24% to $176.9 million as the company's portfolio, and new product launches, expanded. The number of active properties increased 38% to 553 from 400 in the quarter.
“Our strong portfolio of properties and products, and our growing network of retail partners allowed us to achieve very strong third quarter growth in sales,” said Brian Mariotti, Funko’s CEO.
“We have delivered great results in every quarter since our IPO last year, despite a retail landscape that companies in the toy industry have described as challenging.”
Raised Full Year Guidance
The company was bullish and raised full year 2018 guidance.
It expects full year sales in the range of $645 million to $650 million, up from $620 to $630 million in its prior Aug 9, 2018 guidance.
Earnings are expected in the range of $0.68 to $0.73, up from the prior range of $0.60 to $0.70.
The Zacks Consensus is currently at the mid-point of the range, calling for $0.71.
That's earnings growth of 92% as Funko made $0.37 in 2017.
Analysts expect the earnings growth to continue into 2019 as 1 estimate has been revised higher in the last month pushing the Zacks Consensus Estimate for 2019 up to $0.95 from $0.91 in the last 90 days.
That's earnings growth of another 33%.
Shares Spike in 2018 on Fortnite
It's been a wild ride since the IPO.
There was a bit of a Fortnite mania in 2018 because the company was coming out with a holiday toy line based on the popular video game. Even though the company tried to temper expectations, shares spiked.
They ultimately pulled back in December 2018 which created a buying opportunity.
Even though they've rebounded, Funko still has an attractive PE of just 16.9. Given its expected growth, it has a PEG ratio of just 0.8. That's a cheap PEG for a company exhibiting this kind of growth.
Funko won't report fourth quarter results until March 2019.
For investors looking for a trendy consumer brand, Funko is one to keep on the short list.
Bear of the Day:
Occidental Petroleum Corp. is adjusting to the new reality of oil prices under $60. This Zacks Rank #5 (Strong Sell) is seeing its full year earnings estimates cut thanks to the plunge in prices.
Occidental is an oil and natural gas exploration and production company which also has a chemical division and midstream and marketing. It drills in the Permian Basin, Colombia and the Middle East.
2019 Estimates Cut
2018 was a year of recovery for the energy companies.
Occidental made just $0.89 a share in 2017. But in 2018, the Zacks Consensus Estimate is looking for earnings of $4.92. That's down just 11 cents from $5.03 just 90 days ago, which is impressive given the decline in oil prices, and it's also earnings growth of 452%.
But oil prices back under $50 has meant big earnings estimate cuts from the analysts for 2019.
9 have lowered their estimates on 2019 in the last 30 days, although one has raised in the last week. Still, this has crushed the earnings estimate. It has sunk to $3.63 from $6.22 just 3 months ago.
That's an earnings decline of 26%.
It's not hard to see why it's a Zacks Rank #5 (Strong Sell) at this time. The magnitude of the downward estimate revisions are huge and the analysts are in agreement.
Is the Dividend "Safe"?
Occidental pays one of the highest dividends in the E&P industry. It is currently yielding 4.8%.
In an investor presentation given at the Goldman Sachs Global Energy Conference on Jan 7-8, 2019, it laid out the cash flow and production scenarios based on the price of oil.
At $40 WTI it will maintain its production and the dividend.
The company has actually seen 16 consecutive years of dividend growth.
Additionally, it's in the midst of a $2 billion share buyback program.
It expects to complete $1.3 billion in share repurchases in 2018 and finish the program in 2019.
Are Shares on Sale?
The energy stocks have taken a dive, right along with crude.
Occidental shares are down 22% over the last 6 months, but have rebounded off their December 2018 lows.
Still, they're trading with a forward P/E of 17.7 because of those estimate cuts. They aren't a bargain on a P/E basis at this time.
Investors should get the dividend as a reward for their patience, however.
But there's really nowhere to hide in the energy shares right now. The Integrateds are at the bottom 4% of the Zacks Industry Rank.
Why Did Micron (MU) Surge on Thursday?
Shares of Micron were up nearly 7% through afternoon trading hours Thursday, as investors proved keen to test the waters of chip stocks on the back of a few notable earnings reports from industry bellwethers.
The report that could be driving Micron shares higher was delivered by Lam Research on Wednesday afternoon. Lam Research is a major provider of equipment to the semiconductor business, so investors view its results and outlook as indicators of the overall business.
For the most recent quarter, Lam Research posted better-than-expected earnings and revenue. Adjusted profits came in at $3.87 per share, beating the Zacks Consensus Estimate by 20 cents. Meanwhile, revenue in the period was $2.52 billion, up about 8% on a year-over-year basis.
Lam also managed to guide reasonably well. The company said it expects current quarter revenue to land in the range of $2.25 to $2.55 billion. The Zacks Consensus Estimate is currently calling for revenue of $2.43 billion. Lam was able to record revenue of $2.89 billion in the prior-year quarter.
Some investors also liked the tone of management’s comments attached to the report.
“While near-term market trends reflect adjustments after a period of tremendous growth in semiconductor demand, I am confident that our focus on Deposition and Etch technology leadership as well as growth in our installed-base business positions us well for the long term,” said Lam Chief Executive Timothy Archer.
Semiconductor bulls are likely to see Archer’s comments as confirmation that the pullback from the industry’s growth peak will not be too harsh, while bears will hear “adjustments” and think of the troubling oversupply issues that have plagued major manufacturers.
On Thursday, the bulls appear poised to win at least one battle. Micron shares were up 7% to $36.65 through 2:00 PM EST, extending a run of momentum that has now seen the embattled chipmaker rebound roughly 19% in the past month.
It wasn’t all great news for the semiconductor business on Thursday, however. Chip giant Texas Instruments, although comfortably in the green on the day, warned in its report Wednesday afternoon that “demand continued to slow across most markets.”
This tone caused some analysts to caution investors about predicting a premature end to the industry’s pullback. For instance, Stifel’s Tore Svanberg argued that Texas Instrument’s comments pointed to limited visibility into both the depth and duration of the current downtrend.
“People were expecting even worse results. It does not mean everything is behind them... We are still in downturn and what macro does in the next few months and quarters nobody knows,” Svanberg said.
Nevertheless, today’s positive movements in chip stocks, including Micron, underscore a growing belief that this cyclical pullback will be muted by growing secular demand from artificial intelligence, 5G, self-driving cars, cloud computing, and other new and exciting tech growth trends.
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