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Mitsubishi UFJ (MTU) Grows on Acquisition: Time to Hold?

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On Nov 25, 2016, we issued an updated research report on Mitsubishi UFJ Financial Group, Inc. . Despite high expense headwinds, negative interest rates in Japan, an uncertain global economy and a stringent regulatory landscape, this Japanese investment banking firm has been consistently growing through acquisitions on the back of its strong liquidity position. Further, the company remains focused on its plan to upgrade business.

Mitsubishi UFG has been consistently expanding inorganically. The company closed its business alliance deal with Hitachi, Ltd. in Oct 2016, to expand its operations. In Apr 2016, it acquired a 20% stake in Security Bank Corporation to spread out its business in Southeast Asia.

Moreover, the company remains focused on its Medium-term Business Plan (2015 to 2017) that includes upgradation and reformation of its business model and exploration of new business areas. Also, Mitsubishi UFG enjoys a solid liquidity position due to its robust customer base in Japan and depositors’ preference for large financial institutions for the safety of deposits.

However, escalating expenses remain a concern, primarily due to the impact of higher salaries and employee-benefit expenses, along with increased regulatory costs.

Additionally, the company’s revenues are likely to remain under pressure due to sluggish economic growth as well as the negative interest rate policy of the Bank of Japan. Hence, considering these headwinds, Mitsubishi UFG reaffirmed its target of ¥850 billion of consolidated net income for the fiscal year ending Mar 31, 2017, reflecting a decline of 11% year over year.

Over the past seven days, the Zacks Consensus Estimate has remained unchanged at 61 cents and 62 cents, respectively, for fiscal 2017 and 2018.

Currently, Mitsubishi UFG carries a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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