Fujifilm (FUJIY) Braves Headwinds On Robust Growth Drivers

We issued an updated research report on premium multinational firm, FUJIFILM Holdings Corporation (OTC:FUJIY) on Aug 24.

Shares of this Zacks Rank #3 (Hold) stock yielded a return of 2.9%, as against the loss of 24.5% incurred by the industry, in a month’s time.

Notably, the attractiveness of this stock as a safe investment bet is further accentuated by its favorable Value Growth Momentum Score ‘A’.

Existing Scenario

Increased inventory investment in the United States, expansionary policies undertaken by the Chinese government authorities, improving employability, and corporate earnings in Japan and gradual economic recovery of certain European and Asian end markets helped in bolstering Fujifilm’s revenues and profitability over the past few quarters. The company anticipates benefiting from these tailwinds even in the quarters ahead. However, geopolitical risks in Germany and Brexit-induced uncertainties in Europe are expected to drag overseas revenues and profitability in the near term.

Fujifilm had implemented a medium-term management program from Apr 1, 2014 through Mar 31, 2017. Under this, the company boosted its financials on the back of sturdy healthcare, document and highly functional market demand, strategic sales promotion activities, and advanced product launches. The company noted that its stellar revenues and earnings performance in first-quarter fiscal 2018 (ended Mar 31, 2017) was primarily stemmed by the benefits accrued from this program. Fujifilm mentioned that it would continue to reinforce its overall competency, moving ahead, on the back of another new medium-term management plan (to be announced on Aug 30, 2017).

Fujifilm has always tried to reinforce its business on the back of strategic business acquisitions. For instance, acquired assets of Cellular Dynamics International and Ultra Pure Solutions have been strengthening the company’s regenerative medicine business and competency in the semiconductor trading domain respectively since acquired in fiscal 2016. Also, in April 2017, the company acquired Wako Pure Chemical Industries in a bid to fortify its Fine Chemical business. The company noted that Wako acquisition helped boost sales of its chemical and reagents products in the fiscal first quarter. Fujifilm anticipates that it would further improve revenues and realize decent amount of synergies on the back of the Wako integration in the near term.

The company even believes that its new contract wins and constant attempt to improve operational efficacy will likely support top- and bottom-line growth trajectory, moving ahead. For instance, the company noted that it would soon roll out the Work Style Innovation program, which will likely help augment the productivity of its workforce. Moreover, the receipt of seven new Synapse Enterprise Imaging U.S. contracts will play a key role in fortifying the company’s Imaging Solutions business over the long term.

However, we notice that overseas business expansion exposes Fujifilm to risks of unfavorable foreign currency translation. For instance, the company stated that operating income of its Documents Solutions business plunged 28.1% year over year in the fiscal first quarter, primarily due to the adverse impact of foreign currency translation. We believe that currency headwinds such as appreciation of the Japanese Yen or depreciation of Asian currencies might continue to hurt the company’s profitability even in the quarters ahead.

Additionally, each business segment of Fujifilm faces stiff competition. Extensive business rivalry increases the bargaining power of end users and thus, exposes the company to risks of market share loss.

Furthermore, Fujifilm noticed that revenues of its Oceania end markets weakened in the fiscal first quarter due to dismal sales volume of office products and office printer businesses. Also, poor demand for small monochrome models adversely affected results in Asia. Reduced Oceania and Asian sales have been depressing the company’s Documents Solutions business performance for the past few quarters. Persistence of this dismal trend might dent the company’s aggregate top-line performance, moving ahead.

Stocks to Consider

A few better-ranked stocks in the industry are listed below:

Applied Optoelectronics, Inc. (NASDAQ:AAOI) delivered an average positive earnings surprise of 17.98% over the last four quarters and currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

ACI Worldwide, Inc. (NASDAQ:ACIW) carries a Zacks Rank #2 (Buy) and generated an average positive earnings surprise of 31.25% over the trailing four quarters.

Axcelis Technologies, Inc. (NASDAQ:ACLS) , which also carries a Zacks Rank #2, pulled off an average positive earnings surprise of 35.04% in the same time frame.

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