After Solid Q3, This Analyst Expects Double-Digit Sales Growth From Funko Next Year

Funko Inc FNKO turned in a solid third quarter report, prompting an analyst to forecast double-digit sales growth. 

The Analyst

Bank of America Merrill Lynch analyst Rafe Jadrosich reiterated a Buy rating and $12 price target for shares of Funko.

The Thesis

Third-quarter sales were at the high end of the guidance range Funko provided in its Oct. 5 S-1 registration statement, while EBITA and net income were above the guidance ranges, Jadrosich said in a Tuesday note. (See Jadrosich's track record here.)

The upside to BofA's EBITDA and net income forecasts was due to a lower-than-anticipated receivables reserve from Toys "R" Us, Jadrosich said. 

BofA Merrill Lynch is increasing its 2017 revenue and EBITDA forecast for Funko, while lowering 2018 and 2019 earnings per share estimates due to a higher D&A related to the amortization of intangibles from the Underground Toys and Loungefly acquisitions, the analyst said.

The company reiterated its long-term mid-teens revenue growth outlook, which was helped by content growth across categories, expanding U.S. shelf, international growth and new categories, the firm noted. BofA expects double-digit top-line growth in 2018.

Funko said its holiday sell-through rates are tracking ahead of 2016 levels, according to BofA.

The valuation of Funko is attractive at current levels, Jadrosich said. 

The Price Action

At the time of writing, Funko shares were retreating 1.92 percent to $9.12. Since its debut on Nov. 2, the stock has been up about 31 percent, although it is still trading at a discount to its $12 offer price.

Related Links:

How Funko Fared In First Post-IPO Earnings

Roku Impresses With First Publicly Reported Quarter

Photo from Wikimedia.