Nintendo Shares Appear Overvalued, But Significant Upside Risk Remains

While Nintendo Co., Ltd (ADR) NTDOY shares appear overvalued, Goldman Sachs’ Masaru Sugiyama believes there still is meaningful upside risk to the stock.

Sugiyama maintained a Neutral rating on the company, while raising the price target from ¥15,000 to ¥23,400.

The analyst believes there are “four optimistic scenarios for higher profit contributions from console business, product licensing, mobile games, and Pokémon Go.”

Gaming

Soon after its launch in July, Pokémon Go became the biggest mobile game across the world. Sugiyama expects Pokémon Go to generate “equity-method” earnings of ¥19.2 billion in FQ3 2018, with Pokémon Go Plus sales driving operating profits of around ¥5 billion.

Related Link: 'Pokémon GO' Popularity Is Officially In Decline

In addition, Super Mario Run, the mobile version of Mario, is scheduled for launch in December, and the analyst expects revenue to peak in about one or two months, with strong initial revenues.

New Console

“Nintendo posted operating losses for three consecutive years over FY3/12-FY3/14, but this was mainly due to hardware profitability issues,” Sugiyama stated, while adding, “We think Nintendo will not make the same mistake with its new console, the NX, which is scheduled to be unveiled by the end of 2016 and released at the end of FY3/17.”

The analyst estimates NX hardware sales of 2.5 million units in FYQ3:17 and 6.5 million units in FYQ3:17.

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