Jefferies has initiated coverage on NEC Corporation (6701:JP) (OTC: NIPNF) with a Buy rating and set a price target of JPY17,000.00.
The firm highlighted that this target is based on a price-to-earnings (P/E) ratio of 23.1 times the forecasted earnings per share (EPS) of JPY737.0 for the fiscal year ending March 2026.
NEC is currently in the spotlight due to its pivotal role in Japan's shift towards digital transformation (DX) and its success in securing multi-year defense contracts.
The company's contributions to Japan's national security are garnering increased attention. Additionally, NEC's reputation for robust cybersecurity solutions and consulting services, particularly through its subsidiary Abeam, is strengthening its market position.
With a strategic mid-term focus, NEC is promoting Core DX solutions, which are aimed at addressing the needs for digital transformation platforms. This includes pushing into the Global 5G space and offering solutions for Digital Government and Digital Financial services. NEC is presently in the fourth year of its five-year mid-term strategic plan.
However, the firm pointed out that NEC's return to shareholders could be improved. When compared to competitors like Hitachi (OTC:HTHIY) or Fujitsu, NEC's return on invested capital (ROIC) minus weighted average cost of capital (WACC) spread is nearly zero. While efforts are being made to improve this spread, Jefferies suggests that this is an area for NEC to focus on in its next mid-term plan.
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