Yakult stock rating downgraded at UBS, target cut to JPY2,700

On Tuesday, UBS analysts have downgraded Yakult Honsha (2267:JP) (OTC: YKLTY) stock from Neutral to Sell, adjusting the price target downward to JPY2,700.00 from the previous JPY3,000.00. Despite the stock’s 14.54% YTD gain, the downgrade was prompted by a reassessment of the company’s earnings projections and strategic outlook. According to InvestingPro data, the company currently trades at a P/E ratio of 17.57, which appears high relative to its near-term earnings growth prospects.

UBS analysts cited multiple reasons for the downgrade, including the belief that consensus estimates for Yakult’s sustained profit growth are overly optimistic. They anticipate that the company’s profits will remain flat over the next five years, contrary to the more positive market expectations.

Another factor influencing the downgrade is the 70% total payout ratio target that Yakult disclosed with its third-quarter results for the fiscal year ending March 2025. Analysts at UBS do not believe this payout target will provide adequate support for the stock’s value in the near term.

The analysts also expressed concerns regarding the timing of Yakult’s global launch of high-value-added products. They suggested that these products could take time to reach the market, which may delay the potential positive impact on the company’s financial performance.

Furthermore, the upcoming announcement of Yakult’s new medium-term plan (MTP), which coincides with the full-year results, is not expected to reveal any significant new positive developments. UBS analysts pointed out that since management has already disclosed a payout policy, the MTP is unlikely to surprise investors with additional favorable news.

In conclusion, UBS analysts see a downside risk for Yakult’s stock until consensus estimates are adjusted to more realistic levels. The firm’s analysts will continue to monitor the company’s performance and market expectations.

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