Today, the quiet period expired for recent IPO Funko (FNKO), allowing those firms involved with the deal to publish research and establish estimates on the stock for the first time. As we discuss below, the initiations were decisively bullish, which has the stock popping higher by 4% in pre-market action, possibly setting the stage for it to make new highs this morning. This move higher is a rather dramatic reversal from FNKO's very rocky debut in which its deal priced well below expectations ($12 vs. $14-$16), opened for trading 33% below its IPO price, and then immediately sunk down to the $7 area.
For those unfamiliar with the company, FNKO describes itself as a leading pop culture consumer products company. Its business is built on the principle that almost everyone is a fan of something and the evolution of pop culture is leading to increasing opportunities for fan loyalty. It infuses distinct designs and aesthetic sensibility into one of the industry’s largest portfolios of licensed content over a wide variety of product categories, including figures, plush, accessories, apparel and homewares.
The company has licensing relationships with many established content providers, such as Disney, HBO, LucasFilm, Marvel, the National Football League and Warner Brothers. FNKO strives to license every pop culture property that it believes is relevant to consumers. FNKO currently has licensed over 1,000 properties, which it believes represents one of the largest portfolios in the industry, and from which it can create multiple products based on each character within those properties.
FNKO sells its products through a diverse network of retail customers across multiple retail channels, including specialty retailers, mass-market retailers and e-commerce sites. It can provide its retail customers a customized product mix designed to appeal to their particular customer bases. Its current retail customers include Amazon, Barnes & Noble, Entertainment Earth, GameStop, Hot Topic, Target and Walmart in the United States, and Smyths Toys and Tesco internationally.
Analysts in Agreement: FNKO is a Buy
As noted above, FNKO did not get off to the greatest start. There are a couple possible explanations for the sour sentiment. First, FNKO does have exposure to brick-and-mortar retail, which as everyone knows is continually under pressure from online channels. And second, negative headlines surrounding the NFL and movie industry may have played a role as well since a significant portion of its products are tied to these industries. However, analysts believe the weakness and negative sentiment has been overdone.
There are at least eight initiations this morning, and every one of them landed on the bullish side (Buy, Overweight, Outperform). The one that stands out the most is Goldman Sachs Buy and $16 target -- nearly 100% higher from current prices. Other notable initiations include: JP Morgan assigned an Overweight and $14 target; BofA Merrill a Buy and $12 target; Piper Jaffray gave it an Overweight and $12 target, and SunTrust went with a Buy and $11 target. The average price target of this morning's initiations is $12.38, a whopping 52% higher from Friday's closing price.
Clearly, analysts feel that FNKO is considerably undervalued at current prices. These initiations should provide a spark for the stock, especially if it manages to close at new highs today. The next key event for FNKO will be its Q3 earnings report. There is no date confirmed for that yet, but, those results should be issued in the next couple of weeks.
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