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On Friday, Morgan Stanley downgraded shares of Hamamatsu Photonics KK (6965:JP) from Overweight to Equalweight, adjusting the price target to ¥3,800 from ¥5,000. The revision reflects concerns over the company's near-term sales recovery and inventory levels.
In a recent statement, the firm acknowledged Hamamatsu Photonics' significant potential in applied optics and its prospects for high earnings growth in the medium to long term. However, the firm pointed out that the company faces challenges in the short term. A full recovery in sales across medical, bio, and industrial equipment sectors is expected to be gradual.
The analyst also highlighted the urgency to address the ¥81.7 billion in inventory recorded at the end of the third quarter of fiscal year ending September 2024, which corresponds to 316 days of inventory turnover. This high level of stock presents a critical issue for the company to manage.
Furthermore, it was noted that many of Hamamatsu Photonics' products have high marginal profit margins. This suggests that while the company works to reduce its inventory, profit growth driven by increased sales could be constrained.
The downgrade and price target adjustment reflect Morgan Stanley's cautious stance on Hamamatsu Photonics' stock performance in the face of these operational challenges. The firm's analysis indicates that investors may need to temper their expectations for profit growth during the inventory reduction period.
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