On Friday, DA Davidson maintained a Buy rating on Funko (NASDAQ:FNKO) stock, while increasing the price target to $16.00 from the previous $12.00. This adjustment follows Funko's third-quarter performance, which surpassed expectations, leading to an upward revision of the company's EBITDA forecast for 2024.
Funko's third-quarter earnings outperformed projections, prompting the firm to raise the upper limit of its 2024 EBITDA guidance by $5 million, equating to a 6% increase. Despite this positive adjustment, DA Davidson has chosen to adopt a more cautious stance for the fourth quarter of 2024, reducing the EBITDA estimate to $22 million from the initial $24 million, a move described by the analyst as conservative.
The company anticipates a year-over-year decline in sales for the fourth quarter of 2024. This expectation is due to a softer order book, with retail buyers adopting a "wait and see" approach. In light of the current outlook and ahead of the issuance of formal guidance, DA Davidson has also decided to lower its sales growth projections for 2025.
The report suggests that the new CEO of Funko may target positive sales growth in the upcoming year. Meanwhile, DA Davidson forecasts that the company's debt-to-EBITDA ratio could fall below 2.5 times in the fourth quarter of 2024. Looking further ahead, the analyst has initiated estimates for 2026, rolling the financial analysis forward by a year.
The raised price target of $16.00 is based on a 23-fold multiple of the firm's estimated earnings per share of $0.70 for 2026. This revised target reflects confidence in the company's long-term earnings potential despite the near-term adjustments to sales and EBITDA expectations.
In other recent news, Funko has seen several developments. Financial services firm Stifel has adjusted its price target for Funko, citing in-line third-quarter results and operational savings. The new target is $10.50, up from the previous $9.00. The firm's analyst predicts a modest year-over-year decline in Funko's third-quarter earnings, with an expected Adjusted EBITDA of around $23 million and revenue anticipated to hit $290 million.
In addition, Funko has amended the compensation arrangement for its Chief Commercial Officer, Andrew Oddie, granting him a monthly relocation stipend and other benefits due to his temporary move to the Greater Los Angeles area and additional responsibilities. This move emphasizes Funko's commitment to supporting its executive talent as they take on more significant roles within the company.
Funko has also garnered attention from B.Riley, which raised its price target for Funko shares to $15.00, up from the previous $13.00, following a non-deal roadshow with Funko's management. B.Riley's confidence in Funko's potential for accelerated sales growth and Adjusted EBITDA margin expansion anticipated for 2025 and beyond was bolstered by this interaction.
In a recent earnings call, Funko reported a 3% increase in net sales, reaching $248 million, and a robust adjusted EBITDA of $28 million. Despite economic challenges, Funko maintained its full-year guidance, expecting net sales to range between $1.047 billion and $1.103 billion and adjusted EBITDA to hit between $65 million and $85 million.
Lastly, Funko has announced a partnership with the National Football League (NFL), allowing the company to offer custom Pop! Yourself figures featuring t-shirts and hoodies with logos from any of the 32 NFL teams. This collaboration is expected to attract additional consumers to Funko's diverse product range and significantly contribute to the company's growth.
InvestingPro Insights
Funko's recent performance and DA Davidson's optimistic outlook are reflected in several key metrics from InvestingPro. The company's stock has shown significant momentum, with a 41.44% price return over the last three months and an impressive 84.59% return over the past six months. This aligns with the InvestingPro Tip highlighting Funko's "Strong return over the last three months" and "Large price uptick over the last six months."
Despite the positive stock performance, InvestingPro data reveals that Funko's revenue growth for the last twelve months as of Q2 2024 was -10.33%, which supports the article's mention of anticipated year-over-year sales decline. However, the quarterly revenue growth of 3.18% in Q2 2024 suggests a potential turnaround, which could be influencing DA Davidson's maintained Buy rating.
An InvestingPro Tip notes that "Analysts do not anticipate the company will be profitable this year," which is consistent with the current P/E ratio of -11.65. This information adds context to DA Davidson's conservative approach for Q4 2024 and their adjusted EBITDA estimates.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Funko, providing a deeper understanding of the company's financial health and market position.
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