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JPMorgan upgrades Funko, says toy stock has upside even as economic growth slows

As companies grapple with how to manage slowing growth and a potential recession, JPMorgan says its optimistic about the outlook for the maker of vinyl figurines and bobbleheads, Funko . The firm upgraded the stock to overweight from neutral and gave it a $28 price target — about 33% from its closing price Wednesday. JPMorgan pointed to Funko’s “strong content rebound,” diminishing margin headwinds and resiliency in recessionary periods as drivers of its investment thesis. It also has an attractive valuation and is trading at a deep discount relative to its peers in the toy industry, analyst Megan Alexander said in a note Thursday. “[The toy] Industry is a relative safe haven during [a] cyclical downturn with FNKO’s low price points making it more resilient,” she said, noting that it grew 7% in 2008 but was down 4% in 2009. “We would expect relative outperformance in a downturn as parents have historically been reluctant to cut back on toy spending during recessions, partly due to low average price points/product durability, and there is lower risk of demand pull-forward given the event nature of the category,” she continued. Alexander added that Funko’s low price points of below $12 make it especially well poised and that items even under $25 could do well. Additionally, JPMorgan sees the company’s EBITDA margin decline peaking in the second quarter, with expansion expected in the second half of 2022 and in 2023. –CNBC’s Michael Bloom contributed reporting.

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