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On Monday, Wolfe Research has downgraded Sony Corporation’s (NYSE:SONY) stock rating from Outperform to Peer Perform. The downgrade comes amid a challenging period for the company, with InvestingPro data showing the stock has declined over 14% in the past week. The downgrade comes as the Trump administration implements significant "reciprocal" tariffs, which analysts believe pose a real threat to the profit forecasts of companies heavily reliant on consumer discretionary spending.
Sony, which derives approximately 30% of its customer sales from the United States and sources around 70% of its core operating profits (excluding Financial Services) from consumer discretionary segments, is anticipated to face challenges in the fiscal year 2025. Despite maintaining strong revenue growth of 9.75% over the last twelve months and earning a "Good" Financial Health Score from InvestingPro, this concern is particularly focused on its video games, consumer electronics, and image sensors divisions.
Wolfe Research points out that while Sony has taken measures such as stockpiling inventory in the U.S. to mitigate the impact of the tariffs, the company’s conglomerate structure could face more pressure compared to its competitors. The stock currently trades at a P/E ratio of 16.39x and appears fairly valued according to InvestingPro’s Fair Value model. Despite showing attractive metrics like a PEG ratio of 0.73, suggesting good value relative to growth, the current "abnormal" times and a tendency for estimate revisions to trend downward have shifted Sony’s risk/reward balance to neutral.
The decision not to downgrade Sony to Underperform is based on expectations that the company will still achieve its 5th Mid-Range Plan targets for fiscal years 2024 to 2026, which include a core revenue compound annual growth rate (CAGR) of more than 10% and core operating margins, albeit at reduced levels than previously expected.
Wolfe Research’s valuation of Sony’s core business takes into account the sum-of-the-parts on fair market multiples, with the anticipation of the Financial Services division being spun off in October 2025. The firm recognizes that there is still an upside opportunity for Sony as macroeconomic volatility decreases, despite the current challenges it faces.
In other recent news, Patreon has launched a new podcast network program, partnering with Sony Music and Amazon (NASDAQ:AMZN)’s Wondery to offer select podcasts on its platform. This initiative aims to enhance fan interaction and provide exclusive benefits, with podcasters earning over $472 million from more than 6.7 million paid memberships in the past year. Meanwhile, JPMorgan has maintained an Overweight rating on Sony, raising its price target to JPY4,600 due to a modest increase in operating profit forecasts for Sony’s Games & Network Services division. Similarly, Bernstein increased its price target for Sony to JPY4,600, citing strong PlayStation sales and a potential for significant software revenue growth by March 2026. Macquarie also raised its price target to JPY4,050, following better-than-expected operating profit in Sony’s Games division. In contrast, Citi maintained a Neutral rating on Sony with a JPY2,800 target, noting significant changes in Sony’s management structure, including Hiroki Totoki’s promotion to CEO. These developments reflect varied analyst confidence in Sony’s growth trajectory and strategic initiatives.
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