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Goldman Sachs downgrades Funko, cites risks to toymaker’s long-term growth plans


Goldman Sachs thinks it’s time to dump Funko ‘s stock as the toymaker has little room for error to execute its long-term growth plans. Analyst Stephen Laszczyk downgraded the stock to sell from neutral and set his price target to $8.50, presenting a 30% downside from Tuesday’s close. The analyst’s old price target stood at $22. Although Funko is currently well-positioned due its broad portfolio of licensed toys –which is critical in the toy market — the analyst said the company’s ambitious earnings growth target of approximately 50% will be difficult to reach. “In order to achieve this, Funko, in our view, will need to successfully execute against a relatively complex series of initiatives, including extending current products lines, expanding into new product categories, building a larger retail presence in international markets, scaling a direct-to-consumer platform, and executing against implementing new and more efficient distribution systems,” the analyst wrote in a client note on Tuesday. “In many instances, success in parts of Funko’s strategy will determine success in other parts.” “As a result, we view the margin of error to meet consensus expectations as relatively small. We see downside risk to consensus estimates based on recent execution,” Laszczyk said. Laszczyk added that other headwinds for Funko include continued pressure on its margins stemming from the company’s limited execution on direct-to-consumer retail and international expansion. The company is also at risk of losing significant large toy licenses or a collection of licenses, in addition to rising royalty costs, he said. Macro concerns also weigh upon the toymaker, as rising interest rates influence foreign exchange rates. Funko shares have rallied 10.9% this year, though they are down 31.5% in the past 12 months. Laszczyk also downgraded Hasbro to neutral from buy, noting there’s upside for the company, but not until it deleverages its balance sheet. — CNBC’s Michael Bloom contributed to this report.

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