Canon Upgraded At Goldman, Removed From Japan Sell List

In a report published Monday, Goldman Sachs analyst Toshiya Hari upgraded the rating on

from Sell to Neutral, while removing the company from the Japan Sell List. The price target has been raised from ¥3,300 to ¥3,850. "With Canon having announced a major growth acquisition, we think the market will take a more positive view of its large cash reserves. However, we believe it is premature to consider turning bullish, as a further re-rating would require existing businesses to bottom and new ones to boost earnings," Hari explained. The stock has risen 20 percent since December 5, 2013, and 19 percent in the last 12 months. "We downgraded Canon to Sell, from Neutral, in December 2013, as we believed slower volume growth in main businesses would depress the contribution margin and capacity to reduce costs, pressuring profits. Fundamentals subsequently worsened, highlighted by interchangeable lens camera volume and laser printer consumables," the Goldman Sachs report stated. However, Canon's share price and its absolute earnings level have recovered since that time, partly driven by the weaker yen. On the other hand, sales and profits have continued their decline on a real basis. The FY12/15-FY12/17 operating profit estimates have been raised 8-9 percent, primarily due to changes in the analyst's forex assumptions.