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On Aug 19, 2013, we upgraded our recommendation on Fujifilm Holdings Corporation (FUJIY - Analyst Report) to Outperform from Neutral, based on the company’s solid fiscal first-quarter 2014 performance.

Why the Upgrade?

Fujifilm reported strong results for the first quarter of fiscal 2014, with net income of ¥15.0 billion ($151.4 million), increasing 497.0% year over year, in local currency. Revenues also increased 9.7% year over year to ¥568.7 billion ($5,759.4 million). The increase in revenues was on the back of strong sales in the documents business, medical systems business as well as the flat panel display business.

Fujifilm’s pharmaceuticals business witnessed a double-digit year-over-year hike in the quarter, pushing the total sales up. The business is expected to grow further in the coming quarters.

Additionally, the company’s inorganic growth has been tremendous in the reported quarter. The Sonosite acquisition in Mar 2012 contributed immensely to the Medical Systems division of Information Solutions, driving the segment’s growth in fiscal 2013 as well as fiscal first quarter of 2014.

The company recently launched products ranging from lenses to printers. In order to tap the growth potential of the lens business, the company started operations of its new optical lens factory, FUJIFILM Optics Philippines Inc., in Jul 2013.

Also, Fujifilm is managing its costs efficiently, leading to higher margins. This, we believe, will position Fujifilm as a sustainable and profitable corporation with a larger market share in the quarters ahead.

Other Stocks to Consider

Fujifilm currently carries a Zacks Rank #1 (Strong Buy). Other stocks worth a watch in the technology industry are Alliance Fiber Optic Products Inc. (AFOP - Snapshot Report), Axcelis Technologies Inc. (ACLS - Snapshot Report) and Coherent Inc. (COHR - Snapshot Report). While Alliance Fiber carries a Zacks Rank #1 (Strong Buy), Axcelis Technologies and Coherent carry a Zacks Rank #2 (Buy).

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