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Zacks #1 Stocks on the Move 09/30/2016

Company Name Symbol %Change
QUIDEL CORP QDEL
5.74%
TILLYS INC TLYS
5.74%
AXT INC AXTI
5.06%
LIMONEIRA CO LMNR
5.00%
DUCOMMUN INC DCO
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Analyst Blog

NVIDIA (NVDA) Is One of the Best Tech Stocks: Here's Why

Posted Fri Sep 30, 04:00 pm ET

by Zacks Equity Research

Technology has remained one of the favorite sectors among investors due to its dynamic nature. The field is expected to accelerate faster than ever before. Therefore, if you invest right, you can make a good profit. Tech companies will continue to transform our world with each passing year. So, if you don’t want to be left behind, make sure you’re investing in quality tech stocks.

Below we have evaluated one such tech company that has demonstrated remarkable share price performances so far. The company has raked in high returns for investors till now, and has the potential to keep exceeding expectations in the days ahead.

NVIDIA Corporation NVDA

Widely known for its video gaming chips, NVIDIA has pioneered the art and science of visual computing. With a singular focus on this field, the company offers specialized platforms for the gaming, automotive, data center and professional visualization markets. Its products, services and software deliver amazing experiences in virtual reality, artificial intelligence and autonomous cars.

The stock has been clocking solid returns since the beginning of 2016 and has gained over 100% year to date. The robust performance is mainly because of the company’s phenomenal results in back-to-back quarters. This has boosted investor confidence in the stock substantially as many realized that the company is much larger than simply GPUs.

In the second quarter, the company posted earnings of 44 cents, much better than our estimate of 37 cents. This followed another massive beat by the company — 18.9% in the previous quarter — indicating that this stock is on fire.

NVIDIA’s foray into the autonomous vehicles and other automotive electronics space has been driving this stock higher since mid-2015. It should be noted that during the last reported quarterly results, the company witnessed a 68% year over year jump in automotive segment revenues, mainly driven by premium infotainment and digital cockpit features in mainstream cars.

Its plan to unveil new technology for self-driving cars is also encouraging. The evolution of smart cars that can "see" for us, alert us to danger and even brake the car when we're not paying attention is just the beginning of this innovative venture.

Notably, the graphic chip behemoth unveiled a new AI supercomputer chip designed for self-driving cars, called Xavier, at its GPU Technology Conference (GTC) in Amsterdam yesterday. Per the company, the processor is capable of delivering 20 trillion operations per second (TOPS) of performance, while consuming just 20 watts of power.

Apart from this, NVIDIA has entered into a partnership with TomTom – a Dutch mapping and navigation group, to develop AI in order to create a cloud-to-car mapping system for self-driving cars.

The company’s current Drive PX 2 computer chip for self-driving cars is considered to be as powerful as 150 MacBook Pros, and has the capacity to power 12 video camera inputs and sensor fusion. The chip, according to NVIDIA, can run about 24 trillion deep learning operations per second thereby enabling driverless cars to determine the next move in a fraction of a second.

While consumers are already using cameras to stay in a single lane, which has greatly reduced accidents, this is the not the main reason behind the development of this technology. It's in fact the statistics that show a dramatic rise in distracted driving and how some new auto technology like Automatic Emergency Braking (AEB) can prevent tens of thousands of rear-end collisions every year, saving countless lives. NVIDIA is also trying to revolutionize technology to make cars a safer means of getting around.

Notably, the company already provides various technologies such as digital instrument clusters, navigation, advanced driver-assistance systems and infotainment under its partnership agreement with several automakers including Honda HMC, Tesla Motors TSLA Audi, Volvo, Mercedes-Benz and BMW.

NVIDIA CORP Price

Bottom line

As long as the pace of development of automotive technology keeps up, we believe that this Zacks Rank #1 (Strong Buy) stock with a long-term EPS growth estimate of 10.3%, will continue to rally. You can see the complete list of today’s Zacks #1 Rank stocks here.

Many would argue that NVIDIA, with its hefty forward P/E valuation of 36.06x compared with the industry average of 24.9x, is a risky bet. We beg to differ as hefty valuations and increasing share prices do not necessarily imply that the stock does not have much upside potential left.

The stock has grabbed the spotlight with striking performances on the back of solid earnings results and strong growth projections. Keeping this in mind, we believe investing in this stock would yield strong returns for your portfolio in the short term.

Furthermore, with its sustained efforts toward attaining robust position in several emerging industries such as Artificial Intelligence (AI), deep learning and driverless cars industry, NVIDIA has moved way ahead of its main competitor Advanced Micro Devices Inc. AMD in terms of growth.

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Micron Technology (MU) Q4 Earnings: What's in the Cards?

Posted Fri Sep 30, 03:51 pm ET

by Zacks Equity Research

Micron Technology Inc. MU is set to report fourth-quarter fiscal 2016 results on Oct 4. Last quarter, the company posted a positive earnings surprise of 27.27%. It is worth noting that Micron has outperformed the Zacks Consensus Estimate in three out of the four preceding quarters with an average positive earnings surprise of 19.02%.

Let us see how things are shaping up for this announcement.

Factors to Consider

Micron reported mixed third-quarter fiscal 2016 results. While the top line missed the Zacks Consensus Estimate, the bottom line fared better than the same. The year-over-year comparisons on both the counts were unfavorable, primarily due to softness in the PC segment. Also, pricing pressure in client SSD and lower-than-expected sales of trade Non-Volatile products impacted the top line.

However, the acquisitions of Elpida and Rexchip (now known as Micron Memory Japan, Inc. and Micron Memory Taiwan Co., Ltd., respectively) will increase Micron’s traction in the memory market.

Micron is positive about the product launches and growing demand, particularly SSD products. The company has been constantly innovating in memory technologies, spanning DRAM, NAND and NOR Flash memory solutions, which are being widely used in the latest mobile computing devices as well as in consumer, networking and embedded products.

However, Western Digital Corporation WDC, a key player in the NAND space, could increase competition in the industry.

MICRON TECH Price and EPS Surprise

Earnings Whispers?

Our proven model does not conclusively show that Micron will beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at a loss of 9 cents. Hence, the difference is 0.00%.

Zacks Rank: Micron has a Zacks Rank #2 (Buy). We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks to Consider

Here are some other companies, which you may want to consider as our model shows that they have the right combination of elements to post an earnings beat in their upcoming release:

DragonWave Inc. DRWI with an Earnings ESP of +29.47% and a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

Fastenal Company FAST with an Earnings ESP of +2.22% and a Zacks Rank #3.

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McCormick (MKC) Tops Q3 Earnings on Acquisitions, Ups View

Posted Fri Sep 30, 11:11 am ET

by Zacks Equity Research

McCormick & Co. Inc. MKC delivered better-than-expected results in the third quarter of fiscal 2016, where both earnings and revenues beat the Zacks Consensus Estimate. The company has also raised its financial guidance for full year 2016.

Adjusted earnings of $1.03 per share beat the Zacks Consensus Estimate of 95 cents by 8.4%. Moreover, it was 21.1% higher year over year, owing to favorable tax rate and higher operating income. Further, the favorable impact of higher sales and cost savings were offset by an increase in brand marketing and material costs, and currency headwinds.

Revenues and Profits

The global leader in flavors and spices delivered third quarter revenues of $1.091 billion, which marginally beat the Zacks Consensus Estimate by 0.2%. Revenues grew about 3% from the prior-year quarter, driven by acquisitions (Stubbs and Gourmet Garden), which added 2% to the sales increase.

Product innovation, brand marketing support and expanded distribution, as well as pricing actions also led to sales growth, offsetting the negative impact of material costs and currency. Excluding currency headwinds, revenues grew 6%.

The company’s adjusted operating income grew 11.7% to $172 million in the third quarter. On a constant currency basis, it increased 15%, owing to higher sales and cost savings more than offsetting material cost inflation and brand marketing expenses.

MCCORMICK & CO Price, Consensus and EPS Surprise

 

MCCORMICK & CO Price, Consensus and EPS Surprise | MCCORMICK & CO Quote

Segment Details

Consumer Business: Segment revenues grew 7% on a constant currency basis, driven by acquisition gains, increased volume, better product mix as well as pricing actions. Sales increased on a constant currency basis in all the regions of Americas, Europe, Middle East and Africa (EMEA), and Asia/Pacific. 

On a constant currency basis, adjusted operating income rose 12% driven by the favorable impact of sales growth and cost savings more than offsetting the increase in brand marketing expenses and unfavorable impact of higher material costs.

Industrial Business: Segment revenues increased 4% year over year on a constant currency basis in the third quarter, driven by higher sales, improved volumes, higher pricing in response to higher material costs and improved product mix. Sales increased on a constant currency basis in all the regions of Americas, EMEA and the Asia/Pacific.

On a constant currency basis, adjusted operating income increased 23% year over year, as the favorable impact of higher sales and cost savings more than offset the unfavorable impact of increases in material costs and brand marketing expense.

Raised Fiscal 2016 Guidance

The company has raised its earnings and sales growth outlook for 2016 driven by strong year-to-date performance and current projection for the fourth quarter.

The company expects sales to grow approximately 3%, which is at the upper end of its previous range.  Excluding the estimated impact of unfavorable currency rates, the projected growth rate is approximately 6%.  The company expects higher base business sales, new products, acquisitions and pricing to contribute to this growth rate.

The company expects 2016 adjusted operating income to grow approximately 7%, which is at the upper end of its range of 5% to 7% increase from adjusted operating income of $614 million in 2015. In constant currency, adjusted operating income is expected to grow approximately 10%.

McCormick continues to expect 2016 adjusted earnings to be in the range of $3.75 to $3.79 per share, up from the previous guidance of $3.68 to $3.75 per share. The new guidance marks an increase of 8% to 9% compared with $3.48 in 2015. On a constant currency basis, adjusted earnings are expected to grow in the range of 12% to 13%. The Zacks Consensus Estimate for fiscal 2016 stands at $3.75 per share, which is at the lower end of the guidance.

Our Take

Overall, McCormick is focusing on building sales through acquisitions, and expects strong sales momentum to continue in fiscal 2016. Its cost saving initiative is also appealing. The company expects currency headwinds to continue in 2016. However, earnings growth might get hurt by higher brand marketing expenses.

Zacks Rank

Currently, McCormick has a Zacks Rank #2 (Buy).

Other well-positioned consumer staple companies include Omega Protein Corp. OME, US Foods Holding Corp. USFD and Ingredion, Inc. INGR.

Omega Protein has an average positive earnings surprise of 24.01% in the trailing four quarters and also has a long term earnings growth rate of 8.00%, while US Foods has a long term earnings growth rate of 18.59%. Both sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Ingredion, holding a Zacks Rank #2, has an average positive earnings surprise of 9.63% in the trailing four quarters and also has a long term earnings growth rate of 11.00%.

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Costco (COST) Beats on Q4 Earnings, Misses on Revenue

Posted Fri Sep 30, 10:56 am ET

by Zacks Equity Research

Costco Wholesale Corporation COST posted fourth-quarter fiscal 2016 earnings of $1.77 per share that beat the Zacks Consensus Estimate of $1.73 and also increased 2.3% from the prior-year quarter. The warehouse club chain’s bottom line benefited from lower credit card fees on account of its switching over to Visa from American Express.

The company managed to sail through high tides and to an extent succeeded in allaying investors’ fears, amid stiff competition and food price deflation that have been weighing upon the sector’s performance. Shares were up roughly 2% during after-market trading hours yesterday.

Delving Deeper

Total revenue, which includes net sales and membership fee, rose 2.2% year over year to $36,560 million in the reported quarter. Quarterly net sales went up 2.1% to $35,728 million, whereas membership fee increased 6% to $832 million. However, total revenue fell short of the Zacks Consensus Estimate of $36,574 million. This marked the seventh straight quarter of revenue miss for the company.

Costco’s comparable-store sales (comps) for the quarter remained flat. The company witnessed a 2% increase in comps across its Canadian locations, offset by a 1% and 2% decline registered at its U.S. and Other International locations.

Excluding the effect of lower gasoline prices and foreign exchange, the company witnessed comps growth of 3% during the quarter, with U.S., Canada and Other International comps registering an increase of 2%, 5% and 1%, respectively.

Costco’s operating income in the quarter under review rose 3% year over year to $1,191 million, whereas operating margin (as a percentage of total revenue) expanded 10 basis points to 3.3%.

COSTCO WHOLE CP Price and Consensus

COSTCO WHOLE CP Price and Consensus | COSTCO WHOLE CP Quote

Financial Aspects

Costco ended the quarter with cash and cash equivalents of $3,379 million, and long-term debt (including current portion) of $5,161 million. The company’s shareholders’ equity was $12,079 million, excluding non-controlling interests of $253 million.

Let’s Conclude

Costco continues to be one of the dominant retail wholesalers based on its breadth and quality of merchandise offered. A differentiated product range enables the company to ensure an upscale shopping experience for its members, resulting in market share gains. Moreover, Costco continues to maintain a healthy membership renewal rate. It is also gradually expanding its e-commerce capabilities in the U.S., Canada, U.K., Mexico, Korea and Taiwan.

However, Costco faces stiff competition Sam’s Club, a division of Wal-Mart Stores Inc. WMT that follow a similar business model, which pushes through high volumes of merchandise at low prices in membership-only warehouse clubs. Thus, aggressive pricing to gain market share and drive traffic amid stiff competition, may depress sales and margins, going forward.

Costco currently operates 715 warehouses, comprising 501 warehouses in the U.S. and Puerto Rico, 91 in Canada, 36 in Mexico, 28 in the U.K., 25 in Japan, 12 in Korea, 12 in Taiwan, 8 in Australia, and 2 in Spain. The company plans to open 9 more new warehouses (including one relocation) before the end of this year.

Zacks Rank

Costco currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the retail space are Big Lots Inc. BIG and Burlington Stores, Inc. BURL both holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Big Lots delivered an average positive earnings surprise of 8% over the trailing four quarters and has a long-term earnings growth rate of 13.4%.

Burlington Stores delivered an average positive earnings surprise of 16.1% over the trailing four quarters and has a long-term earnings growth rate of 18.4%.

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Hewlett Packard Enterprise, Microsoft Extend Partnership

Posted Fri Sep 30, 10:55 am ET

by Zacks Equity Research

As per a Wall Street Journal report, Hewlett Packard Enterprise Company HPE is likely to boost its collaboration with Microsoft Corporation MSFT at Microsoft Ignite in Atlanta related to the latter’s hybrid platform, Azure.

Strategic Move                          

Earlier, Hewlett Packard Enterprise had tried its hand at gaining market traction in the public cloud space. However, given the fierce competition in the sector, the company opted to be a reseller of Microsoft Azure as part of a new partnership deal.

The company intends to utilize the hybrid cloud to run its cloud capabilities. It will now be able to shift some of its off-premise jobs to the cloud.

We note that with CEO Meg Whitman at the helm, Hewlett Packard Enterprise continues to evolve as a more efficient business focused on emerging sectors such as cloud computing, Internet of Things (IoT), data storage, networking and software-defined services.

Notably, the company shut down its public cloud offering HP Helion in Oct 2015 due to stiff competition. However, with Microsoft’s Azure by its side, the company seems to have regained confidence to make its presence felt in the cloud.

In its third quarter fiscal 2016 results, the company posted earnings of 49 cents per share and reported revenues to the tune of $12.2 billion.

Benefits

Traditionally, public clouds are known to provide cost reductions as on-premises setups are not required. On the other hand, a private cloud or a hybrid cloud provides both security and computing performance to users. Hence, the hybrid cloud is an attractive option for traditional enterprise customers who want to make the switch to the cloud. 

Our Take

Apart from HPE, Dell Technologies Inc. DVMT and Adobe Systems Incorporated ADBE are also looking forward to collaborate with Microsoft on the hybrid cloud.

We note that, of late, many companies are choosing Microsoft’s Azure over Amazon’s AWS cloud service, which bodes well for Microsoft in the long run.

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Procter & Gamble to Expand in Hungary, Create 250 Jobs

Posted Fri Sep 30, 10:50 am ET

by Zacks Equity Research

Consumer goods giant The Procter & Gamble Co. PG intends to expand operations in two of its manufacturing plant at Csomor and Gyongyos, Hungary. The proposed expansion will involve an investment of $200 million, creating 250 positions.

The signing of the expansion agreement with Hungarian government officials reportedly took place at P&G’s Hyginett Plant in Csomor, where it will upgrade technology to manufacture women’s sanitary pads. Packaging operations for its Braun razor brand and assembly and packaging operations for some Oral B tooth care products will be carried out at its Baby Care plant in Gyongyos.

Notably, total P&G employs about 1,200 workers in Hungary. About 800 people work at the Hyginett Plant whereas the Baby Care plant has employed more than 150 workers.

Management is optimistic about the fact that this expansion, which is part of its global supply chain transformation, will make P&G’s end-to-end supply network more efficient, productive, innovative and better positioned to drive growth.

Notably, P&G’s core earnings per share dipped 2% to $3.67 in fiscal 2016. Although the company’s organic sales grew 1% year over year, its net sales were down 8% to $65.3 billion. Though weak sales have been offsetting margin improvement from pricing gains and cost cuts for some time now, P&G is investing in its brands and products as well as re-designing the supply chain to boost productivity and organic growth.

In the wake of intensifying competition from industry peers like Colgate-Palmolive Co. CL, The Clorox Company CLX and Reckitt Benckiser Group plc RBGLY, the expansion drive could likely be P&G’s strategy to boost its top line.

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Nutanix's NASDAQ Debut Set on Sep 30, to Raise $241.5M

Posted Fri Sep 30, 10:45 am ET

by Zacks Equity Research

San Jose, CA-based Nutanix Inc NTNX is set to start trading on Sep 30, 2016 at the NASDAQ stock exchange. The enterprise cloud platform provider recently raised its price range for initial public offering (IPO) to $13-$15 per share from an earlier range of $11-$13.

At the current price range, Nutanix is expected to raise almost $241.5 million by selling 14 million shares. Underwriters that include the likes of Goldman Sachs, Morgan Stanley and J.P. Morgan have the option to buy 2.1 million additional shares of class A stock.

Nutanix’s enterprise cloud platform “converges traditional silos of server, virtualization and storage into one integrated solution and can also connect to public cloud services.” The company’s offerings include two software products Acropolis and Prism, which are delivered on x86 servers.

Lightspeed Centure Partners and Khosla Ventures with 22.7% and 10.8% ownerships are the major venture capitalists. Nutanix has raised more than $300 million in equity funding since its foundation in 2009. In May, this year the company borrowed $75 million from Goldman Sachs.

Nutanix is well positioned to benefit from the strong growth prospect of hyperconverged integrated systems (HCIS). Per market research firm Gartner, HCIS will grow 79% to reach almost $2 billion in 2016. By 2019, HCIS will be the fastest-growing segment of the overall market for integrated systems, reaching almost $5 billion.

Notably, Nutanix was named a Leader in the 2015 Gartner Magic Quadrant for Integrated Systems.

Per MarketWatch, Nutanix had 3,768 end customers as of Jul 31, 2016, which includes the likes of Activision Blizzard ATVI, Best Buy BBY, Jabil Circuit JBL and Kellog K among others. In fiscal year 2016, revenues soared 84% year over year to $445 million, slightly slower than almost 90% surge it posted in fiscal 2015.

However, net losses widened from $84 million in 2014, to $126 million in 2015 and $168 million in 2016. The company anticipates reporting net loss for the foreseeable future.

Recently, Nutanix acquired virtualization software provider PernixData for about $38 million and India-based software development platform provider Calm.io for about $7.2 million. The acquisitions will bolster its platform in terms of improved storage performance, storage capacity planning, multi-cloud workload migration and automated application deployment.

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Comcast Signs Share Warrant Agreement with Harmonic

Posted Fri Sep 30, 10:45 am ET

by Zacks Equity Research

Comcast Corporation CMCSA has entered into a share warrant deal with Harmonic Inc. HLIT. The warrant will allow Comcast to purchase up to a 10% stake in Harmonic at a fixed rate of $4.76 per share, dependent upon the performance of certain operational metrics like product milestones and sales target. This is the third similar warrant agreement Comcast has entered into this year after the deals with ARRIS International plc ARRS and Universal Electronics Inc. These agreements reflect Comcast’s focus on virtualized networking in its cable research and development (R&D).

Shifting Focus

Traditionally, cable operators like Comcast have been dependent on hardware-based infrastructure for their services. With the increasing demand for new Internet-based services for retail and business customers, it will become tougher for cable operators using hardware infrastructure to meet demand in the future. However, Harmonic’s software-based CableOS solution will help Comcast achieve scalability, agility and operational cost savings. 

The Bottom Line

Comcast is striving to push for R&D on its cable based infrastructure. With an aim to seamlessly launch DOCSIS 3.1-based Gigabit Internet services, Comcast is on the lookout for software-based solutions that will allow it to deliver services at a lower cost. Notably, Comcast’s Gigabit Internet services will face serious competition from Alphabet Inc.’s GOOG Google Fiber. In the wake of such threats, we believe Comcast’s agreement with Harmonic bodes well for its long-term plans.  

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Vertex Orkambi's Label Expanded in U.S., Outlook Revised

Posted Fri Sep 30, 10:40 am ET

by Zacks Equity Research

Vertex Pharmaceuticals Incorporated VRTX announced that its cystic fibrosis (CF) drug, Orkambi, was approved in the U.S. for the treatment of CF in patients aged 6–11 years who have two copies of the F508del mutation. The company said that the drug will be available to the eligible population shortly.

Vertex also plans to file a Marketing Authorization Application (MAA) variation in the EU for the same indication in the first half of 2017.

Note that Orkambi is a combination of lumacaftor and Kalydeco (ivacaftor), a marketed CF drug in the company’s portfolio. Orkambi was approved in the U.S. and the EU in Jul 2015 and Nov 2015, respectively, for the treatment of CF in patients aged 12 years and older, who have two copies of the F508del mutation in their CF transmembrane conductance regulator (CFTR) gene. In the first six months of 2016, Orkambi raked in sales of $468.7 million.

Meanwhile, Vertex has lowered its 2016 guidance for Orkambi sales to the range of $950–$990 million from the previously expected $1.0–$1.1 billion. The revision was primarily due to slower-than-anticipated launch of Orkambi in Germany and less-than-expected refills in the months of July and August. Sales of the drug are expected in the range of $230–$235 million in the third quarter of 2016.

CF, a rare, life-threatening disease, is estimated to affect approximately 75,000 people in the U.S., Europe and Australia. The company expects the latest label expansion of Orkambi to cover approximately 11,000 patients in the U.S.

Although Vertex is the first company to successfully develop drugs for the treatment of the underlying cause of CF, several other players in the pharma and biotech space are involved in the development of drugs for this indication. Nivalis Therapeutics, Inc. NVLS is currently evaluating its own CF candidate, N91115, in a phase II study. Top-line results of the study are expected by the end of 2016.

Earlier this year, Galapagos NV GLPG and AbbVie Inc. ABBV expanded their collaboration agreement for CF and aimed to develop a triple CFTR combination therapy.

We expect investor focus to remain on further news related to the CF market.

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Sony (SNE) Firing on all Cylinders, PS4 Sales Going Strong

Posted Fri Sep 30, 10:30 am ET

by Zacks Equity Research

Sony Corporation SNE is going from strength to strength and has several growth drivers presently, with the company’s PlayStation 4 video game console being the strongest. The company has gained over 37% in the past one year, and it seems it still has room to go up.

Earlier this month, the entertainment giant launched two fresh versions of its market-leading PlayStation 4 video game console.

Let’s discuss the company’s growth drivers in details and take a look at its new ventures.

Growth Drivers

Talking of Sony, the first thing that strikes us is its flagship PS4 console, which lies at the heart of the company's success. As far as gaming consoles are concerned, Sony is hands-down beating its chief rival Microsoft Corporation MSFT. It has sold 43.4 million PS4 consoles across the world, eclipsing the 22.3 million that Microsoft’s Xbox One achieved, per industry website VGChartz.

Recently, Sony launched two versions of its market-leading PlayStation 4 video game console, as it strives to maintain its sales lead over Microsoft and Nintendo Co. Ltd. NTDOY. The company also declared its plans to release a more powerful version of the flagship machine this fall, well ahead of similar plans of its rivals next year.

The new high-end console, known as “PlayStation 4 Pro” now, boasts powerful features. Sony also unveiled a lighter, slimmer, more energy-efficient PS4 to replace the original fourth-generation PlayStation machine.

Most importantly, the console is optimized for Sony's upcoming PlayStation VR virtual reality headset. Sony will launch its VR headset in October and the games call for a greater processing power compared to those using standard television displays.

Sony’s wide user base provides the company a tremendous platform for launching new products and services. The PS4 upgrade might just be a well-timed strategy to dominate the VR space, positioning Sony perfectly to reap the benefits of its immense client base as well as the holiday season. We believe that the launches will be highly accretive to Sony’s financials in the coming quarters.

Sony touts its games business to be its biggest growth driver, encouraged by robust console sales, an increase in subscribers to its PlayStation network and the prospects of its VR headset. In the fiscal year ending Mar 2017, the company anticipates its gaming business to generate about 45% of its overall operating profit and estimates selling about 20 million PS4s in that period.

SONY CORP ADR Price and Consensus

Further, the company’s Music and Image Sensors businesses are also high-profit divisions, and Sony is focusing on expanding them. Though the Image Sensor division is a market leader, it was affected due to the Kumamoto earthquakes earlier this year. We believe that the unit will return to a strong growth trajectory soon.

Sony is also focusing on innovating new products and finding new opportunities under its "Business Incubation Group. For example, the company has decided to re-enter the robots business and is investing in the related field of artificial intelligence.

Such developments lead us to believe that Sony’s future is quite bright. The only reasons that the company has been under pressure are macroeconomic factors like weak consumer spending and foreign currency volatility, which are outside the company’s control.

Going forward, we expect Sony to continue leveraging on its growth drivers and unlocking new ones as it continues to shift gears in its growth plans, to reflect changing trends of the fast-evolving industry.

Sony competes with GoPro, Inc. GPRO.

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