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Sony Shares Up 40.4% YTD: What's Driving the Performance?

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Shares of Sony Corporation (SNE - Free Report) have risen 40.4% so far this year. The electronics and media company has outperformed its industry’s growth of 35.7% over the same time frame.    

The Zacks Rank #1 (Strong Buy) stock, with a market cap of nearly $84.8 billion, has impressed investors with its recent earnings streak. It topped estimates in each of the trailing four quarters, the average beat being 86.9%. It has a long-term earnings growth expectation of 7.7%. Sony has a VGM Score of B.

We believe that the Tokyo, Japan-based company has several growth drivers in place and enjoys a robust foothold in its served markets. These should help it maintain momentum in the quarters ahead.

Growth Drivers

Measures to realign its business portfolio, like withdrawing from the PC business and selling the battery business, is aiding Sony. In the recent years, the firm has achieved sales and profitability growth in the Game & Network Services, Imaging & Sensing Solutions (formerly Semiconductors) and Music segments.

It has enhanced profitability in the Pictures and Electronics Products & Solutions segments and secured stable profit contribution from the Financial Services segment. Increase in media networks and television productions sales as well as insurance premium revenues is expected to aid growth of the Pictures and Financial Services segments. Music sales are predicted to be driven by strong Visual Media and Platform sales as well as Recorded Music sales.

A few days back, Sony communicated that it is working round the clock to manufacture image sensors, which are used in mobile phone cameras. But even a 24-hour operation hasn’t been enough to keep up with the increasing demand. It is more than doubling its capital spending on the semiconductor business to ¥280 billion in the ongoing fiscal, and is building a new plant in Nagasaki that will be operational from April 2021.

In November, Sony acquired AT&T’s (T - Free Report) minority stake in Game Show Network for about $500 million. The deal has enabled the company to gain full ownership in the multimedia entertainment firm. The Game Show Network channel will continue to be carried on the cable network of DIRECTV — a subsidiary of AT&T. Going forward, the transaction will augment Sony’s robust catalogue of game shows and first-run series, thereby strengthening its market-leading position.

Sony believes that converting its business units into distinct subsidiaries will enhance its organizational independence as each independent unit sets high targets in an effort to accomplish the company’s mid-term targets. These steps will allow it to generate sustainable profit, accelerate decision-making processes and reinforce business competitiveness. Collaborations and state-of-the-art product launches are likely to benefit its top line amid a challenging business environment and rapidly evolving technology cycles.

Trend in Estimate Revisions

The Zacks Consensus Estimate for Sony’s current-year earnings has been revised 7.7% upward over the past 60 days from $3.76 to $4.05. Also, over the same time frame, the consensus estimate for its next-year earnings has been revised 7.6% upward to $4.65.

Upbeat Fiscal Q2 Performance

For second-quarter fiscal 2019, Sony’s net income increased 8.6% year over year to ¥187.9 billion or ¥148.59 per share, primarily attributable to lower expenses. The bottom line beat the Zacks Consensus Estimate by 31 cents.

Total expenses were ¥1,845.7 billion, down 5.1% year over year, due to lower cost of sales and SG&A expenses. Operating income was ¥279 billion, up 16.5%, driven by significant increase in operating income in the Imaging & Sensing Solutions and Electronics Products & Solutions segments.

Other Stocks to Consider

Other top-ranked stocks in the broader sector are Qualcomm Incorporated (QCOM - Free Report) and Ubiquiti Inc. (UI - Free Report) , both sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Qualcomm has a long-term earnings growth expectation of 14%.   

Ubiquiti has a long-term earnings growth expectation of 9.4%.   

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