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Moody’s Downgrades Canon to Aa3

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Price movement of Canon

Canon (CAJ) has a market cap of $38.5 billion. It fell by 0.81% to close at $28.32 per share on June 13, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were -2.9%, 0.82%, and -6.0%, respectively, on the same day. This means that CAJ is trading 0.82% below its 20-day moving average, 1.8% below its 50-day moving average, and 3.9% below its 200-day moving average.

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Related ETF and peers

The Vanguard FTSE Pacific ETF (VPL) invests 0.67% of its holdings in Canon. VPL tracks the FTSE Developed Asia Pacific Index, a market-cap-weighted index of securities in the developed markets of the Pacific region. The YTD price movement of VPL was -2.4% on June 13, 2016.

The market caps of Canon’s competitors are as follows:

  • Hewlett-Packard (HPQ): $22.9 billion
  • Kyocera (KYO): $18.4 billion
  • Xerox (XRX): $10.2 billion

Moody’s downgraded Canon

Moody’s Investors Service has downgraded Canon’s issuer rating from Aa1 to Aa3. Moody’s has given Canon a “stable” rating outlook.

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Canon’s performance in fiscal 1Q16

Canon (CAJ) reported fiscal 1Q16 net sales of 797.2 billion yen, a decline of 7.0% compared to net sales of 857.4 billion yen in fiscal 1Q15. Sales of office and imaging system units fell by 14.1% and 10.6%, respectively. Industry and other sales rose by 45.8% in fiscal 1Q16 compared to fiscal 1Q15.

Its net income and EPS (earnings per share) fell to 28.0 billion yen and 25.6 yen, respectively, in fiscal 1Q16, compared to 33.9 billion yen and 31.1 yen, respectively, in fiscal 1Q15.

Canon’s cash and cash equivalents fell by 8.3%, and its inventories rose by 3.9% in fiscal 1Q16 compared to fiscal 4Q15. Its current ratio fell to 1.3x, and its debt-to-equity ratio rose to 0.60x in fiscal 1Q16. This compares to a current ratio and debt-to-equity ratio of 2.5x and 0.39x, respectively, in fiscal 4Q15.

Projections

Canon (CAJ) made the following projections for fiscal 2016:

  • net sales of 3.6 trillion yen, a decline of 5.3% compared to fiscal 2015.
  • operating profit of 300.0 billion yen, a decline of 15.5% compared to fiscal 2015
  • net income of 200.0 billion yen, a decline of 9.2% compared to fiscal 2015

These declines in performance and outlook are mainly due to the global economic slowdown and the decline in oil prices, which restrict the ability of the United States to raise interest rates. The overall effect is the strengthening of the yen from the beginning of 2016.

In the next part, we’ll look at Church & Dwight (CHD).

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