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On Wednesday, Goldman Sachs analyst Sachiko Okada upgraded Toto Ltd. (5332:JP) (OTC: TOTDY) stock from 'Sell' to 'Neutral', while also revising the price target downward to ILs4,100 from ILs4,800. The adjustment reflects a reassessment of the company's valuation and growth prospects, particularly in the Americas and the semiconductor equipment sector.
The upgrade to 'Neutral' is based on two main factors. Firstly, despite ongoing operational losses in mainland China, which are expected to continue through the fiscal years ending in March 2025 to 2027, Goldman Sachs believes that the current stock price has fully accounted for the risks associated with the weak Chinese housing market. The revised 12-month target price suggests a potential upside of approximately 13%, aligning with the average for similar companies covered by the firm.
Secondly, Goldman Sachs anticipates a steady growth in profits from Toto's Americas business, driven by the company's popular Washlets. Additionally, an increase in sales of electrostatic chucks, used in memory semiconductors and marketed in-house by Toto, is expected due to a gradual recovery in the NAND market. This market is forecasted to rebound by 10%-15% in 2025, according to Goldman Sachs' US semiconductor equipment analyst Toshiya Hari.
The firm's analysis indicates that Toto's new domain business, which includes the production and marketing of electrostatic chucks, stands to benefit from the NAND market's recovery and a transition to higher-priced products. This positive outlook for the semiconductor equipment segment contributes to the rationale behind the rating upgrade.
Toto's stock performance and future outlook will likely be influenced by the company's ability to capitalize on growth opportunities in the Americas and the semiconductor sector, as well as its efforts to mitigate losses in its China business.
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