For Immediate Release
Chicago, IL – August 21, 2019 – Zacks Equity Research Funko, Inc. (FNKO - Free Report) as the Bull of the Day, ExxonMobil Corp. (XOM - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Home Depot (HD - Free Report) and Lowe’s (LOW - Free Report) .
Here is a synopsis of all four stocks:
Bull of the Day:
Funko, Inc.has proven it's more than just Fortnite. This Zacks Rank #1 (Strong Buy) was considered a "fad" when it went IPO in 2017 but earnings are expected to jump more than 48% 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.
Big EPS Beat in Q2
On Aug 8, Funko reported its second quarter results and blew by the Zacks Consensus Estimate by 92%. The company reported earnings of $0.25 versus the Zacks Consensus of $0.13.
Sales jumped 38% to $191.2 million while gross profit rose 35% to $71.2 million. Sales were driven by strong demand across all of its geographic markets and product categories.
The top product in the quarter was Avengers Endgame which was 6% of all sales.
Gross margin, however, fell 90 basis points to 37.2% due to higher reserves on inventory, partially offset by improved product cost margins and lower license and royalty costs as a percentage of net sales.
Raised Full Year Guidance
Another strong quarter meant the company raised full year guidance again, even in the face of the latest round of tariffs.
The company has moved 70% of production out of China but still has exposure to the latest tariffs. It believes it can raise prices to offset most of the pain, especially on its low cost products.
It now expects earnings per share to be in the range of $1.15 to $1.22 per share, which was above consensus.
Not surprisingly, the analysts all raised after the earnings report, with the 2019 Zacks Consensus Estimate jumping to $1.22 from $1.14. That's at the very top end of the company's guidance range.
That's earnings growth of 48.8% as Funko made $0.82 last year.
Analysts are also bullish on 2020 as 6 estimates have been raised for that year as well. The Zacks Consensus Estimate has jumped to $1.42 from $1.33 which is another 16.6% growth.
Growth or Value?
With that kind of earnings growth, you'd think Funko would be a growth stock.
Shares have rebounded from the 2018 and are up 73% year-to-date but they're down 5.1% in the last month.
The company trades with a PEG of 0.98 and a P/S ratio of just 0.9.
Both would indicate there's value in these shares.
For investors looking for a growth stock with value, Funko is one to keep on the short list.
[In full disclosure, the author of this article owns shares of FNKO in her personal portfolio.]
Bear of the Day:
ExxonMobil Corp. is finding 2019 to be a year it would rather forget. This Zacks Rank #5 (Strong Sell) is expected to see earnings decline 34.3% year-over-year.
ExxonMobil is one of the largest international energy companies in the world. It is one of the largest refiners and marketers of petroleum products. The company also has one of the largest chemical companies in the world.
A Beat in the Second Quarter
On Aug 2, ExxonMobil reported its second quarter results and beat the Zacks Consensus by $0.05. Earnings were $0.73 versus the consensus of $0.68.
Oil-equivalent production was up 7% year-over-year to 3.9 million barrels per day. Liquids production rose 8% driven by the Permian Basin growth and reduced downtime.
Natural gas volumes increased 5%, excluding entitlement effects and divestments.
The company is also preparing to startup the Liza Phase 1 development in Guyana, which has the potential to be huge. The estimated recoverable resource has been raised to more than 6 billion oil-equivalent barrels there.
Analysts Still Cut Estimates
But with WTI and Brent crude trading lower on the year, earnings estimates have been cut throughout the industry.
5 estimates were cut for 2019 in the last month pushing the Zacks Consensus Estimate down to $3.24 from $3.99. However, one analyst has raised his estimate in the last week.
But given that the company made $4.93 a share last year, that's an earnings decline of 34.3%.
Analysts are expecting a rebound for the oil giant in 2020, but 6 analysts still cut their 2020 estimates too in the last 30 days.
The Zacks Consensus is now looking for $4.97, down from $5.59 just 60 days ago.
ExxonMobil's shares are down 8% in the last month and 18.8% over the last year.
It has paid a dividend to shareholders for decades and has actually increased its dividend every year for 37 consecutive years.
With the shares coming down, that dividend is now yielding 5%. That's the highest its been in decades.
A Tale of Two Home Improvement Retailers
Retail earnings week is in full swing and the home improvement retail duopoly is up to bat. Home Depot, the largest home improvement retailer in the world, released its July quarter earnings this morning. The results were mixed, and forward guidance was negative, but traders and investors were ostensibly pleased, with HD rallying over 4% in morning trading. Lowe’s shares are up almost 4% as investors gain optimism going into tomorrow mornings Q2 report.
Lowe’s missed big on earnings in Q1 causing the share price to plummet more than 17% in the week following the release. Lowe’s appeared to be struggling with cost pressures that analysts anticipate persisting for the remainder of the year. Guidance was lowered for the year, with retracting margins expected. Lowe’s analysts have lowered their EPS estimates for the remainder of this year and next.
Lowe’s analysts are estimating a $2.00 EPS on $20.98 billion in sales, which would represent 3.4% earnings decline and less than 1% revenue appreciation.
LOW has struggled to recover from its Q1 results, with share prices only 6.5% for the year (most of that gain being realized in Tuesday’s trading). Look for margin expansion in Q2 guidance to be the key catalyst of a LOW rally, along with any upward revisions to guidance.
Home Depot Results
Home Depot beat EPS estimates but marginally missed on revenues in its July quarter earnings posted this morning. Management guided down full-year sales as the company faces commodity deflation and tariff headwinds. Management estimated a 1-2% impact from the ensuing trade war, which could impact price points and hinder consumer spending if it endures. Timber deflation is also impacting Home Depot’s topline.
Housing renovations are expected to slow as the overall housing market begins to cool down. This will have a negative impact on the firm’s results.
The question that you are likely trying to answer is why HD is up on all the perceivably negative news? I believe that Home Depot’s agile business techniques has allowed the company to weather the category’s headwinds. Home Depot is working closely with suppliers to move production out of China and avoid as much of the tariff burden as possible.
Investors were conservative coming into this earnings report and believed that management would pull guidance down further from all the drawbacks I mentioned above. I believe this rally is merely a small release in investor concern.
Home Depot has been increasing its online presence with more than 9% of purchases done on their online platform. 50% of online orders are picked up in store, saving customers the time it takes to navigate the massive store while being able to pick their home improvement needs up that day.
HD has performed admirably since the beginning of the year outpacing its biggest competitor as well as the broader market. HD has rallied roughly 26% since the beginning of this year.
Home Depot’s ability to navigate the rocky economic waters thus far in 2019 is a positive sign for the home improvement retail sector. Investors are beginning to price in positive results for Lowe’s imminent earnings tomorrow morning.
Look for Lowe’s management to provide color on how they plan to manage the trade headwinds, anticipated slowing housing market, along with brick-and-mortar consumer spending declines. Margin expansions and upwardly revised management guidance could send LOW to new highs. Continued margin contraction might send LOW even lower.
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