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Analyst Blog

On February 5, we downgraded photographic image company, Fujifilm Holdings Corporation (FUJIY - Analyst Report), to Underperform based on the company’s disappointing outlook for the fourth quarter 2013.

Why the Downgrade?

Estimates for Fujifilm, which focuses mainly on the photo imaging business, have been declining ever since it reported a bleak outlook for the fourth quarter of 2013. Fujifilm reported impressive results in the third quarter, which grew year over year as well as beat Zacks Consensus Estimates. However, it reduced its overall outlook for the upcoming quarter. The company reduced its operating income forecast to ¥105.0 billion from the previously announced ¥110.0 billion. However, the company now expects its net income for the year to come at ¥50.0 billion compared with the previously announced ¥45.0 billion. Fourth quarter revenue guidance was maintained at ¥2,210 billion,  

Following the not-so-great outlook for the fourth quarter, the Zacks Consensus Estimate for 2013 has gone down 18.1% to $1.04 per share. The Zacks Consensus Estimate for 2014 has also declined 0.6% to $1.49.

Causes for Concern

The deterioration of the company’s traditional photography business is a major threat to its prosperity. Also, the vast presence of Fuji’s operation beyond Japan exposes it to various regulations in different regions. The major source of income generating Document Solutions segment is also not performing as desired and is losing market share.

On top of this, yen appreciation is a major drawback for the company. As most of the businesses of Fuji are done outside Japan, an increase in the value of yen leads to lower earnings for the company. Based on these factors, it seems difficult for Fuji to attain its revenue guidance for the upcoming quarter.

Other Stocks to Consider

While we remain bearish on Fuji, other technology stocks worth a look are Diodes Incorporated (DIOD - Snapshot Report), holding a Zacks Rank #1 (Strong Buy); while Interdigital Inc. (IDCC - Snapshot Report) and On Semiconductor Corp. (ONNN - Analyst Report); both hold a Zacks Rank #2 (Buy).

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