On Friday, CLSA downgraded Shiseido Co Ltd. (4911:JP) (OTC: SSDOY) stock from 'Buy' to 'Hold', alongside a significant reduction in the price target from JPY4,880 to JPY3,400. The move came after the company reported sales and operating profit (OP) for the third quarter that fell short of market expectations.
Shiseido's third-quarter performance revealed a 6% year-over-year decline in sales and a 7% drop in operating profit. This was notably below the consensus forecasts, which had anticipated a rise in operating profit, resulting in a 57% shortfall from expected figures. The company's sales in China dipped by 11%, and its travel retail segment saw a 39% decrease. Additionally, profits in the U.S. and EMEA regions were down, while Japan posted a 5% increase in sales and a 242% surge in operating profit, which was still insufficient to offset the overall downturn.
The disappointing results have led to a revision of earnings estimates by CLSA, with a 35% cut for the fiscal year ending December 2025 and a 30% reduction for the following year. The firm's valuation of Shiseido now incorporates a lower enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) and price-to-earnings (P/E) ratios.
Shiseido is expected to provide answers during its strategy update on November 29. While CLSA anticipates improvements for the next year, the firm suggests that Shiseido's ambitions may need to be tempered in light of the recent performance. The downgraded rating and price target reflect these adjusted expectations and the challenges faced by the company in its various markets.
In other recent news, Shiseido Co Ltd has seen significant changes in its stock rating from two major financial firms, Jefferies and Goldman Sachs. Jefferies upgraded Shiseido's stock from Underperform to Hold, citing expected contributions from new products launched under the ELIXIR brand. The firm also increased its price target for Shiseido to JPY3,400.00.
Simultaneously, Goldman Sachs shifted its position on Shiseido's stock from Sell to Neutral. This decision followed a reassessment of Shiseido's financial outlook, particularly focusing on projected core operating profit margins and sales growth rates. The firm revised its price target to ¥3,400, aligning with Jefferies' new target.
Goldman Sachs' analysts have reduced their core operating profit estimates for Shiseido for fiscal years 2024 through 2026. Despite these reductions, Shiseido is projected to see year-over-year profit growth for the same period. Shiseido is expected to reveal a new business strategy at the end of November 2024, indicating potential strategic shifts in response to these recent developments.
These adjustments reflect the evolving financial landscape for Shiseido, with both firms indicating a neutral outlook on the stock. This suggests a potential stabilization in the company's valuation, providing investors with important insights into the company's current financial standing and future prospects.
InvestingPro Insights
Recent InvestingPro data aligns with CLSA's downgrade of Shiseido Co Ltd. (OTC: SSDOY). The company's market cap stands at $7.77 billion, with a high P/E ratio of 118.2, suggesting investors are paying a premium for current earnings. This valuation concern is further emphasized by an InvestingPro Tip noting that Shiseido is "Trading at a high earnings multiple."
The company's financial performance reflects the challenges mentioned in the article. Revenue for the last twelve months as of Q2 2024 was $6.14 billion, with a concerning revenue growth of -7.56% over the same period. This decline in revenue supports the article's report of a 6% year-over-year sales decrease in the third quarter.
Despite these headwinds, an InvestingPro Tip highlights Shiseido's "Impressive gross profit margins," which is corroborated by the data showing a gross profit margin of 74.86% for the last twelve months as of Q2 2024. This suggests that while the company is facing sales challenges, it maintains strong pricing power and efficiency in its core operations.
The stock's recent performance has been notably weak, with InvestingPro data showing a 25.59% price decline over the past three months and a 30.77% drop over six months. This downward trend is consistent with the article's discussion of disappointing quarterly results and the subsequent downgrade by CLSA.
For investors seeking a more comprehensive analysis, InvestingPro offers 10 additional tips for Shiseido, providing a deeper understanding of the company's financial health and market position.
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