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On Tuesday, JPMorgan issued a downgrade for Kusuri no Aoki Holdings Co Ltd (3549:JP) stock, adjusting the rating from Overweight to Neutral and revising the price target downward to ¥3,800 from the previous ¥4,000. The firm’s analysts cited several factors influencing their decision, including lower earnings estimates based on recent quarterly results and sales trends.
The downgrade reflects concerns about the profitability of Kusuri no Aoki following its strategic moves to acquire various food supermarkets. JPMorgan’s analysis points to a negative profit impact anticipated from the consolidation of approximately 50 stores from regional supermarket chains such as Happy Terada, Yoshimura/Hustle, and Fushimiya Group, which were not initially included in the company’s guidance.
Additionally, the acquisition of Miwa Shoten, which operates five supermarket stores in Kagawa Prefecture and was announced on May 8, is expected to have a slightly greater impact than previously forecasted. The analysts also noted an expected decline in gross margins due to a price-focused strategy for food and a higher mix of food products, coupled with increased electricity costs that were not fully anticipated in the second-half guidance.
Despite these challenges, JPMorgan analysts have increased their same-store-sales growth estimate for Kusuri no Aoki, as recent performance has exceeded expectations. However, they believe that this positive trend is not sufficient to counterbalance the negative effects of the aforementioned strategic acquisitions and cost increases. The revised price target and rating reflect these updated assessments of the company’s financial outlook.
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