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Fujifilm Downgraded on Oceania Market Distress & Macro Risks

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Zacks Investment Research downgraded FUJIFILM Holdings Corporation (FUJIY - Free Report) to a Zacks Rank #4 (Sell) from a Zacks Rank #3 (Hold) on Jan 15, 2018. Going by the Zacks model, stocks carrying a Zacks Rank #4 are likely to perform weaker than the broader market in the next one to three months.

Why the Downgrade?

Fujifilm conducts its business in a highly competitive market. Extensive business rivalry makes consumers’ demand highly elastic and hence exposes the company to risks to market share loss. In order to boost up brand recognition within the competitive industry, Fujifilm stays under constant pressure to make newfangled research and development investments. However, lofty innovation expenses often weighs on the company’s aggregate margins, and proves to be futile if an innovation becomes obsolete.

The company’s overseas businesses are exposed to risks of adverse foreign currency translations. For instance, in second-quarter fiscal 2018, revenues of Fujifilm’s Documents Solutions segment were hurt due to negative foreign exchange translation impact.

Moreover, Fujifilm predicts that uncertain geopolitical environment in the overseas market (like unclear impact of the Brexit referendum in Europe) might weigh over its near-term profitability.

We also notice that revenues of Fujifilm’s graphic systems business had dipped in second-quarter on account of reduced demand of major product categories such as CTP plates and graphic arts film. We fear that weaker demand might continue to hurt the company’s graphics business and hence depress revenues of its Information Solutions segment.

Revenues of Fujifilm’s Documents Solution segment had dipped by almost 1% in second-quarter fiscal 2018 due to weaker sales generated from the Oceania end-markets. Sales of office printing business had dipped in Oceania, Japan and Asia; on account of an upward shift in price mix. Moreover, lower production services business in the United States and Europe has also weighed over the segment’s performance. Also, revenues of the company’s solutions and services business was also lower in the Asia and Oceania end-markets during the reported quarter. We fear that further downfall in

Oceania revenues might depress Fujifilm’s aggregate revenues in the upcoming quarters.

The stock’s projected sales growth is 2.1% and EPS growth is 7% for fiscal 2018 compared to the respective tallies of 5.6% and 58.8% estimated for the industry. Notably, over the last 7 days, the Zacks Consensus Estimate for Fujifilm has moved south for both fiscal 2018 and 2019, reflective negative market sentiments.   

Stocks to Consider

Some better-ranked stocks within the sector are listed below:

Analog Devices, Inc. (ADI - Free Report) currently sports a Zacks Rank #1 (Strong Buy). The company has pulled of an average positive earnings surprise of 16.34% for the last four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.

Applied Materials, Inc. (AMAT - Free Report) currently sports a Zacks Rank #1. The company has pulled of an average positive earnings surprise of 2.82% for the last four quarters.

Aehr Test Systems (AEHR - Free Report) presently carries a Zacks Rank #2 (Buy). The company has pulled of an average positive earnings surprise of 50.00% for the last four quarters.

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