Bernstein sets Denso stock at Market Perform with ¥1,900 target

On Monday, Bernstein SocGen Group initiated coverage on Denso Corp (6902:JP) (OTC: OTC:DNZOY), a leading global automotive supplier with a market capitalization of $33.2 billion and annual revenue of $45 billion, with a Market Perform rating and a price target of ¥1,900. According to InvestingPro data, the company maintains a strong financial health score of GOOD, supporting its diverse capabilities in next-generation automotive technologies that position it well for future growth. These technologies include electrified vehicles (xEV), autonomous driving/advanced driver assistance systems (AD/ADAS), semiconductors, and software.

Denso is expected to experience a near-term boost from the recovery of Toyota (NYSE:TM)’s domestic production, which is anticipated to benefit the company due to its high contribution margin. The company’s strong financial position, with more cash than debt on its balance sheet and a healthy current ratio of 1.92, provides a buffer against potential risks such as additional import tariffs in the United States. Such tariffs could lead to higher prices for automakers and potentially decrease consumer demand, which would subsequently create challenges for Denso’s revenue growth. InvestingPro subscribers can access 12 additional key insights about Denso’s financial health and market position.

The firm also highlighted that if automakers like Toyota decide to shift their supply chains to the United States, Denso could be subject to increased costs and the necessity for greater investments to meet the changing needs of these manufacturers. Despite these concerns, Denso is poised to gain significantly from the industry’s transition to xEV and software-defined vehicles (SDV) in the mid-to-long term.

Bernstein forecasts that by the fiscal year ending in March 2026, Denso is likely to reach its mid-term earnings target, which includes sales of ¥7 trillion, an operating profit margin of 10%, and a return on equity (ROE) greater than 10%. The company’s efforts to restructure its business portfolio and unwind cross-shareholdings are expected to accelerate, contributing positively to its financial targets.

In conclusion, Bernstein anticipates Denso to maintain a moderate shareholder return, supported by its impressive 34-year track record of consistent dividend payments. Trading at a P/E ratio of 10.82 and currently near its 52-week low, InvestingPro analysis suggests the stock is currently undervalued, reinforcing the company’s potential to deliver value to its investors while navigating the evolving automotive landscape.

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