Canon Inc. - CAJ

We believe the sharp appreciation of the yen is eroding Canon's (CAJ) revenue and profits.

Canon's first-quarter 2009 results were mixed with revenue below expectations while earnings slightly exceeding our expectation. The company expects to improve profitability through product launches and cost cutting efforts. As a result CAJ raised its earnings forecast for the full year 2009, still below 2008 level.

We expect revenue in 2009 to be hurt by weak consumer spending and believe the company will struggle to meet expectations in fiscal 2009. We maintain our estimates for the full year 2009.

Given this, we don't see room for meaningful appreciation from current levels. We maintain our Sell recommendation on CAJ with a 6-month target price of $25.00. This price is based on a P/E multiple of 26.6x our EPADR estimate of $0.94 for 2009, a discount to the industry mean.