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Sony to possibly see a 30% share surge as analysts expect record earnings

Sony to possibly see a 30% share surge as analysts expect record earnings

Investors are getting increasingly bullish on the Japanese technology giant thanks to its booming PlayStation gaming business, which can possibly propel the company’s earnings to a new record

On Friday, Japanese financial holdings company Nomura upped its price target for Sony’s stock to 8,000 Japanese yen ($71.43), marking a more than 27% rise from Monday’s opening price.

Last month, Credit Suisse upgraded its outlook on the shares from “neutral” to “outperform.” The average price target from analysts on Sony’s shares is 7,730.50 yen ($68.87), which if realized, would represent a 23.7% increase, according to Reuters data.

This is a sign for rising expectations. Three months ago, the average price target for the stock among analysts was 6,587.27 yen ($58.69). So far, Sony shares are already up over 22% in 2018.

Yu Okazaki, a Nomura analyst stated in a note published Friday that Sony’s business model is shifting to focus on content—citing the exceptional starts of the new PlayStation 4 game “Spider-Man” and the movie “Venom”—both of which are produced by the company’s content studios.

“Strong performance in these content-related areas means that near-term earnings have probably been better than we had previously expected,” Okazaki said in the note. The analyst added that a relatively stronger dollar has been “a concern” for hardware manufacturers such as Sony—but the company is likely to maintain growth by “sticking to its high value-added strategy.”

The games business, which accounts for over 24% of total revenues– grew 35.6% YoY in the three months that ended on June 30. Sony has also seen growth in its image sensor business, which sells to smartphone makers for cameras within the handsets.

High expectations for those businesses was what led analysts to forecast a record operating profit for the Japanese giant for the fiscal year ending March 31, 2019.

Analysts polled by Reuters projected that Sony would report an operating profit of 794.71 billion yen($7bn).

There are still however, some risks to the business. A slowdown in the smartphone market could hamper demand for components that Sony makes, like image sensors and increased competition in other categories weighing in on the stock.

“Sony faces intense rivalry in each of its product lines including television, game platform and smartphone and services across the world. Failure to create new products that are in sync with customer demand may reduce sales of the company’s products,” Zack’s Investment Research said in a note published on October 9.

“Each of these markets witnesses stiff price wars, continuous product innovations and changing customer preferences, which put immense pressure on Sony to come up with better products so as to sustain the competition,” the note further stated.

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