On Friday, Jefferies adjusted its stance on Nomura Research Institute Ltd. (4307:JP) (OTC: NRILY), downgrading the firm's stock from Buy to Hold while simultaneously increasing the price target to ¥5,500, up from the previous ¥5,120. The revision reflects a price-to-earnings (P/E) ratio of 32.2 times based on the forecasted earnings per share (EPS) of ¥170.8 for the fiscal year ending March 2026.
The rationale behind the downgrade, despite the higher price target, is that Nomura Research Institute is currently trading at a P/E ratio in the 30x range and is not expected to have new catalysts in the near term. According to Jefferies, the potential for stock price appreciation is limited, which warrants a Hold rating.
Jefferies anticipates that Nomura Research Institute's US business and overall international operations will begin to turn a profit from the third quarter onward due to restructuring efforts. There is also a possibility that the company will revise its guidance upward for the fiscal year ending March 2025 to reflect better-than-expected earnings in the first half of the year. However, such a revision may not significantly impact the market's perspective as the first-quarter results and second-quarter progress have already been factored in.
Nomura Research Institute continues to benefit from strong performance in its domestic business, including its Consulting division. The company's recent inclusion in the Nikkei 225 index is also mentioned as one of the contributors to the stock's price increase. Jefferies suggests that the market has already recognized Nomura Research Institute's solid fundamentals and the potential recovery of its overseas business in the second half of the year, which is reflected in the current stock valuation.
Jefferies concludes that they will wait for the next catalyst before considering any further rating changes for Nomura Research Institute.
In other recent news, Nomura Research Institute has been a focal point of analyst reports from Macquarie and Morgan Stanley. Both firms have adjusted their stance on the company's stock, downgrading it from previous ratings. Macquarie shifted its rating from Outperform to Neutral, while Morgan Stanley downgraded the stock from Overweight to Equalweight.
Despite the downgrades, both firms raised their price targets, with Macquarie setting a new target of ¥4,500 and Morgan Stanley raising its target to JPY 5,200. The latter firm projects a fiscal year 2025 operating profit of JPY 137.5 billion for Nomura Research Institute, a 14% year-over-year increase. Sales growth in consulting and IT infrastructure are expected to be key contributors to this increase.
Morgan Stanley also anticipates an improvement in the company's gross profit margin to 36.1%, a 0.7 percentage point increase. The firm estimates a 12% increase in operating profit in Japan, and a significant rise in overseas profit.
InvestingPro Insights
Recent data from InvestingPro adds depth to Jefferies' analysis of Nomura Research Institute Ltd. (OTC: NRILY). The company's market capitalization stands at $20.03 billion, with a P/E ratio of 35.51, aligning with Jefferies' observation of the stock trading at a P/E ratio in the 30x range. This valuation is further supported by an InvestingPro Tip noting that NRILY is "Trading at a high earnings multiple."
The company's strong financial position is evident from its revenue of $4.65 billion in the last twelve months, with a revenue growth of 6.65%. This solid performance underscores Jefferies' positive outlook on the company's domestic business. Additionally, an InvestingPro Tip highlights that NRILY has "maintained dividend payments for 23 consecutive years," indicating consistent financial stability.
Reflecting the stock's recent performance mentioned in the article, InvestingPro data shows a significant 31.39% price total return over the past six months. This aligns with the InvestingPro Tip that NRILY is "Trading near 52-week high," currently at 91.17% of its 52-week high.
For investors seeking a more comprehensive analysis, InvestingPro offers 10 additional tips for Nomura Research Institute, providing a deeper understanding of the company's financial health and market position.
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