Sony Corp (ADR) (NYSE:SNE) (TYO:6758) Stock Is Making A Comeback

- June 18, 2017

Sony Corp (ADR) (NYSE:SNE) (TYO:6758) was restructured in 2014 by selling off non-profitable segments such as their Vaio personal computers.  They are now focusing on high growth areas such as artificial intelligence (AI), augmented reality (AR), virtual reality (VR), robotics, and healthcare.  Sony has spectacularly returned to profit in Q1 2017, delivering a net profit of US $250m, and appear to be making a comeback.

Sony Corp (ADR) (NYSE:SNE) (TYO:6758) Stock To Continue To Gain

Sony Corp (ADR) (NYSE:SNE) (TYO:6758) is a global diversified consumer electronics and entertainment company.  Sony is best known for their gaming products (playstation), their consumer electronics and home entertainment systems, their smartphones and cameras, Sony music, and Sony pictures (film studio).  The company was founded by Akio Morita and Masaru Ibuka on May 7, 1946 and is headquartered in Tokyo, Japan.

Sony chart – 2000-2017

The chart below shows Sony investors have had a terrible run; however the stock price started to recover after the 2014 restructure.

Sony Segments

Mobile Communications and Game & Network Services – Provides the production, acquisition and distribution of motion pictures & television programming, and the operation of television & digital networks.
Products & Solutions, Home Entertainment & Sound, Device, Movie and Music – Provides the development, production, manufacture and distribution of recorded music, and the management & licensing of the words and music of songs.
Financial Services and Others – Is engaged in the various financial services businesses which include life and non-life insurance operations, through its Japanese insurance subsidiaries and banking operations through a Japanese Internet-based banking subsidiary.

Financial Segments, revenue breakup, and YoY change

We can see from the table below that in 2016 Sony was still a mixed bag.  The bad areas included mobile communications (smartphones) due to excess competition.  Sony plans to return to profitability here, by selling only to the profitable global regions.

Source: 4-Traders

Sony’s 2017 revenue breakup by segment and geography

Source

Virtual Reality headset sales to boom

AR and VR headsets are becoming increasingly popular and the new must have trendy item.  Sony is a market leader in this area.  In Q1 2017, Sony sold 429,000 AR/VR headsets taking an 18.8% market share (second only to Samsung with 489,500 units sold for a 21.5% market share).

Sony PlayStation VR headset

Some AR and VR headset forecasts:

  •  IDC forecasts – “Worldwide AR and VR headset shipments are expected to see a compound annual growth rate (CAGR) of 108.3% over 2015-2020.” 
  •  Tractica forecasts – “More than 200 million consumer virtual reality head-mounted displays (HMDs) will be sold worldwide by 2020.  The company forecasts that consumer virtual reality hardware and content revenue will increase from $108.8 million in 2014 to $21.8 billion worldwide by 2020, with a compound annual growth rate (CAGR) of 142%.”
  • An IDC report from March 2017, predicts the amount of shipped AR and VR headsets will reach 99.4M units by 2021, up nearly 10-fold from the 10.1 million units shipped in 2016.

Source

If Sony can maintain a 18.8% market share, that would mean by 2020, they could be selling close to 20m AR/VR headsets (up from around 1m in the past year), which will certainly significantly boost Sony’s profits.

CEO Kazuo Hirai said recently that he expects Sony’s operating profit to reach Y500b (~US$4.5b) for fiscal year ending Mar 2018.  Consensus analysts’ estimates are forecasting Y288b, suggesting we may soon see analysts upgrading their forecasts if Sony can deliver.

Catalysts

  • In June, 2017, Sony announced it is releasing the first title from a new unit focusing on smartphone games, initially targeting Japan where its PlayStation 4 has lagged behind.  Popular playstation games such as “Everybody’s Golf” will soon be available as a phone app for free download on various smartphones including the Apple (NASDAQ:AAPL) iPhone.
  • AR and VR headsets are becoming increasingly popular and the new must have trendy item.  Sony is a market leader in this area.  With increasing VR headset sales come increasing games sales.  PlayStation VR owners have already bought 5.25m games.

Competitors

Sony’s main competitors include the gaming companies and the consumer electronics and smartphone companies such as Microsoft (NASDAQ:MSFT), Panasonic (OTCMKTS:PCRFY), Sharp (OTCMKTS:SHCAY), LG Electronics (KRX:066575), and Samsung (OTCMKTS:SSNLF).

Valuation

Sony market cap is currently US $47.69b. 2018 forecast PE is 18.0.  Net profit margins for 2018 are forecast to increase slightly to 3.61%.  2018 dividend yield is forecast at 0.79%.

Sony forward PE

Assuming Sony estimates are met which seems very likely as they are well below the CEO’s guidance, then Sony is currently at fair value on a forward PE of 18.0.  If Sony is able to deliver CEO Kazuo Hirai’s Y500b forecast then the 2018 PE will drop towards 10, making Sony a bargain.  For this to happen unprofitable segments must be axed, and PlayStation 4 and PlayStation VR headsets have to boom.  Both of these are looking quite realistic.

Conclusion

Sony came to fame in the past with several category killers such as the Sony Walkman, and the Sony PlayStation. This may well happen again with the Sony PlayStation virtual reality headsets.

Sony is already a leader in gaming, and the VR headsets are a new product with huge potential sales upside to both gamers and non-gamers, which should mean Sony can achieve strong revenue increases.  Combine this with management’s strict plan to cut unprofitable segments and this should lead to a strong rebound in profits as we already saw in Q1, 2017.

Sony is fairly valued right now, and should be on investor’s radar if they are bullish on the gaming and VR areas. I rate them as accumulate, especially if we see more positive signs that the VR is booming.

This entry was posted in 2017 Stock Outlook, Technology Bookmark the permalink.
RSS feed for this post. Post a comment or leave a trackback: Trackback URL.

One Comment

  1. moderena
    Posted June 19, 2017 at 9:50 am | Permalink

    Thanks Ed – The more I read about the company the more I like it. Great pick.

One Trackback

  1. para que serve um cartA£o de visita no publisher

    Sony Corp (ADR) (NYSE:SNE) (TYO:6758) Stock Is Making A Comeback

Post a Comment

You must be logged in to post a comment.







Join the 100s Who Beat the Market with a BNL Membership

See What Current Members Are Saying

My Complete Access BNL Membership Includes

  • No contract. Guaranteed results. Cancel anytime.
  • Unrivaled Performance. The BNL Portfolio has outperformed the S&P 500 by 150% since October 1, 2015
  • Access. You know what goes in the BNL Portfolio, David’s Dividend Portfolio, and Eddy’s Options.
  • Alerts. You know when a trade is made in all three managed portfolios with application, text, and email alerts
  • Transparency. Verifiable trade records for the BNL Portfolio, David’s Dividends, & Eddy’s Options
  • Research. We have coverage on more than 50 companies
  • Results. Our 10 highest rated stocks outperformed the market by 134% last year
  • Live Chat. Join 100s of other members in an exclusive Members Only section with Chat
  • Growth. We are the fastest growing financial research platform in our industry.
  • Build My Portfolio. You give us your goals, we help you get there
  • Premium Content. Unlock hidden sections in each article. You also get Value of the Month selections and BNL Research Reports.
  • Community. We have professionals and beginners; retirees and college students; the 99% & 1%, but here, we are all equal.


Like what you see? Sign up for our newsletter and get the latest stock picks straight to your email!

%d bloggers like this: