On Wednesday, Sundrug Co., Ltd. (9989:JP) (OTC: SDGCF) received an upgraded stock rating from Jefferies, moving from Hold to Buy. The firm also adjusted the price target for the company's shares to JPY4,100.00, a decrease from the previous target of JPY4,200.00. The upgrade comes despite a reduction in the forecast for the company's consolidated operating profit (OP) for the fiscal year ending in March 2025.
The decision by Jefferies to elevate Sundrug's stock rating reflects a positive outlook on the company's financial health. The analyst cited Sundrug's industry-leading ability to control earnings as a key factor in the upgrade. Additionally, there is an anticipation of an improvement in the company's gross profit margin (GPM) starting from the third quarter onward, which is expected to enhance the company's investment appeal.
The revised price target of JPY4,100.00 takes into account the company's performance in the first half of the year. Jefferies' assessment suggests that while the initial reaction to Sundrug's half-year results was negative, leading to a decline in share price, the company's prospects remain strong.
The analyst's statement sheds light on the rationale behind the upgrade and the price target adjustment. "Based on 1H results, we have reduced our forecast for consolidated OP for FY March 2025, and lowered our price target to ¥4,100. We believe that the company's industry-leading ability to control earnings and our expectation of an improvement in GPM from 3Q onwards make for an increasingly attractive investment case," said the analyst from Jefferies.
Investors and market watchers will be keeping a close eye on Sundrug's performance in the upcoming quarters to see if the company meets the expectations set by Jefferies' analysis. The upgrade to Buy suggests a confidence in Sundrug's potential for growth and profitability in the near future.
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