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Why Deutsche Bank Upgraded Sony to a ‘Buy’

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Jul. 7 2016, Published 2:28 p.m. ET

Price movement 

Sony (SNE) has a market cap of $37.6 billion. It rose by 3.1% to close at $30.09 per share on July 6, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were 7.0%, 4.5%, and 22.3%, respectively, on the same day.

SNE is trading 5.7% above its 20-day moving average, 11.4% above its 50-day moving average, and 18.2% above its 200-day moving average.

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Related ETF and peers

The Vanguard FTSE Pacific ETF (VPL) invests 0.56% of its holdings in Sony. The ETF 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 -0.91% on July 6.

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

  • Canon (CAJ): $37.6 billion
  • Harman International Industries (HAR): $5.1 billion
  • Dolby Laboratories (DLB): $4.7 billion

Sony’s ratings

Deutsche Bank has upgraded Sony’s rating to a “buy” from a “hold.” It set its stock price target at $39.61, or 4,000 yen, per share.

TheStreet reported that Deutsche Bank sees potential in Sony’s PlayStation.

TheStreet Ratings rated the stock a “hold” with a score of C+.

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Performance in fiscal 4Q15 and fiscal 2015

Sony (SNE) reported fiscal 4Q15 sales and operating revenue of 1.8 trillion yen, or about $16.7 billion. That’s a decline of 5.9% compared to 1.9 trillion yen, or about $17.7 billion, in fiscal 4Q14.

Following are sales and operating revenues from Sony’s various segments:

  • Mobile Communications: fell 37.9%
  • Imaging Products and Solutions: fell 9.6%
  • Home Entertainment and Sound: fell 8.3%
  • Devices: fell 15.5%
  • Financial Services: fell 0.5%

Sales and operating revenue from the Game and Network Services, Pictures, and Music segments rose 9.0%, 8.7%, and 10.9%, respectively, in fiscal 4Q15, compared to the same period the previous year.

Its net income rose to -88.3 billion yen, or about -$8.1 billion, in fiscal 4Q15 compared to -106.8 billion yen, or about -$9.8 billion, in fiscal 4Q14. EPS (earnings per share) rose to -70.03 yen, or about -$0.64, respectively, in fiscal 4Q15 compared to -91.39 yen, or about -$0.83, in fiscal 4Q14.

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Fiscal 2015 results

In fiscal 2015, Sony reported sales and operating revenue of 8.1 trillion yen, or about $74.2 billion, a decline of 1.3% YoY (year-over-year). Its net income and EPS rose to 147.8 billion yen and 117.49 yen, respectively, in fiscal 2015, compared to -126.0 billion yen and -113.04 yen, respectively, in fiscal 2014.

Sony’s cash and cash equivalents and inventories rose by 3.6% and 2.7%, respectively, in fiscal 2015. Its current ratio and debt-to-equity ratio fell to 0.86x and 4.3x, respectively, in fiscal 2015, compared to 0.88x and 4.4x, respectively, in fiscal 2014.

Projections

The company has made the following projections for fiscal 2016:

  • sales and operating revenue of 7.8 trillion yen
  • operating income of 300.0 billion yen
  • EBIT (earnings before interest and tax) of 270.0 billion yen
  • net income of 80.0 billion yen
  • capital expenditure of 355.0 billion yen
  • sales and operating revenue of -16.6% for Mobile Communications, 8.3% for Game and Network Services, -22.5% for Imaging Products and Solutions, -10.3% for Home Entertainment and Sound, -0.3% for Devices, 7.7% for Pictures, -11.0% for Music, and 6.2% for Financial Services

This forecast includes the impact of earthquakes, which suspended the operations of the company. Currently, operations have restarted. This also includes the negative impact of foreign exchange rates and the increase in PS4 hardware and software sales.

In the next part, we’ll take a look at Ford Motor.

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