We recently upgraded our recommendation on Fujifilm Holdings Inc. (FUJIY - Analyst Report), a Japan-based company, from Underperform to Neutral based on solid market fundamentals.
In the last reported quarter, the company reported an increase in the medical systems and life sciences business. The Document Solutions business saw a marginal increase in its revenue; overshadowed by a weak European economy. In addition, the company is currently expanding outside Japan to increase its revenue besides augmenting its product and service portfolio.
The company’s efforts to reduce costs in order to maintain and in turn increase margins seem to pay off. Despite a steep rise in raw material costs, the gross margin for the company decreased by a meager 50 basis point in the third quarter of fiscal 2013 as compared to the year-ago quarter. Fuji was able to pull off a high net income of $101.3 million, far exceeding $5.0 million earnings reported in the year-ago quarter.
Consequently, the company is expected to perform in line with the broader market, thus inducing a Neutral recommendation
However, the company seems to fall much below the initial revenue generation in the traditional imaging business in the world of digitalization. Moreover, cut-throat rivalry from competitors like Canon Inc. (CAJ - Snapshot Report), who have been continuously developing, launching and marketing hi-tech digital expertise, further threatens the company’s traditional businesses. Also the risk of overcapacity in photo-imaging and photographic films sector is likely to depress profit.
The current Zacks Consensus Estimate for fiscal 2013 is $1.27, representing a year-over-year increase of 14.4%. Estimate for fiscal 2014 is $1.50, reflecting annual growth of 18.1%.
The stock currently bears a Zacks #3 Rank (Hold), while its prime competitors Canon has a Zacks #4 Rank (Sell) and Photronics Inc. (PLAB - Snapshot Report) has a Zacks #3 Rank (Hold).