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On Tuesday, Citi issued a downgrade for NSK Ltd (6471:JP) (OTC: NPSKY) shares, shifting the rating from Buy to Sell and reducing the price target to JPY650 from the previous JPY900. The adjustment comes as the firm anticipates the release of NSK's fiscal year 2025 second-quarter results scheduled for October 31.
The analyst at Citi, ahead of the upcoming financial report, has revised the price target and rating based on several factors. The second-quarter operating profit (OP) is projected to be JPY6.2 billion, which is slightly above the Bloomberg consensus of JPY5.8 billion. However, the full fiscal year 2025 operating profit forecast has been lowered to JPY31.5 billion from JPY33.0 billion, which is below the company's guidance of JPY36.0 billion.
The previous stock price target of JPY900 was established on a price-to-book ratio (PBR) of 0.7x. In light of the anticipated subdued cyclical rebound in profits for the next year, the valuation method has been shifted to an earnings multiple approach. The new price target is based on an 11 times multiple of the forecasted fiscal year 2026 earnings per share (EPS) of JPY58, resulting in the revised target of JPY650.
Despite acknowledging some value attractions in NSK Ltd's shares, the Citi analyst noted that these attributes have not provided substantial support to the stock's performance throughout the year. This sentiment is reflected in the decision to downgrade the stock and lower the price target ahead of the company's financial disclosures at the end of the month.
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