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.
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