UPDATE: Jefferies Downgrades Nintendo

Jefferies downgraded Nintendo Co., Ltd (ADR) NTDOY from Hold to Underperform Friday.

Analyst Atul Goyal made the downgrade “as the recent price has taken it out of its trading range (¥10.5K-14K) to >¥14K. Here the downside risks outweigh upside.

“Its revenues and profits face structural and cyclical declines (recent results showed revenues in 5 of 6 product lines fell YoY). Ad-spend cuts which helped profits will make it worse. At 40x+ PER and 1.4x PBR (with 3 percent RoE) makes it the most expensive game company in the world.”

Goyal added that the “core business appears to be in terminal decline, unless Nintendo makes structural changes. 5 of the 6 product lines (with Wii-U being the only exception) fell YoY in the latest Sep-qtr. While Wii-U h/w grew, it was shocking to see Wii U s/w sales decline YoY (-5 percent YoY) despite a much bigger installed base.”

Goyal concluded, “If Nintendo embraces changes and offers games on smart-devices, we believe it can unlock the value of its IP. But that is not happening.”

Nintendo recently traded at $14.58, up 0.21 percent.