On Tuesday, FANUC Corp (6954:JP) (OTC: FANUY (OTC:FANUY)) received an upgrade in its stock rating from Citi, shifting from Neutral to Buy. The firm also increased the price target for FANUC's shares to JPY5,500, up from the previous JPY5,100. The revision comes amid expectations of a market rebound and is marked by a new cash-adjusted price-to-earnings ratio forecast.
The upgrade reflects Citi's greater confidence in the potential recovery of machine tool demand and a favorable view of the broader industrial sector's valuation. Additionally, FANUC's recent announcement of a significant share buyback program, valued at approximately JPY 50.0 billion, has also contributed to the reassessment.
FANUC's performance has lagged compared to the TOPIX index, showing a year-to-date underperformance of around 10% and a more substantial 40% over the last three to five years.
The underperformance is attributed to various factors such as a decade-long slump in profit margins since their peak, heightened competition from Chinese robotics manufacturers, and a heavy reliance on the Chinese market for sales.
Citi's analysis includes projections for FANUC's first-quarter orders in the fiscal year ending March 2025, estimated at JPY 180.0 billion, with operating profits anticipated at JPY 34.8 billion. The firm also speculates that FANUC may revise its operating profit guidance upward with the forthcoming quarterly results.
The report does caution, however, that the main risk to this positive outlook would be a downturn in China's economic growth, which could impact FANUC's performance due to its significant exposure to the Chinese market.
In other recent news, Citi has upgraded FANUC Corp from Neutral to Buy, increasing the price target from JPY5,100 to JPY5,500. This upgrade reflects renewed confidence in a resurgence in machine tool demand, an elevated valuation for global industrials, and the impact of FANUC's newly announced JPY50 billion share buyback program.
Citi's revised price target is based on a cash-adjusted price-to-earnings ratio (PER) of 27 times for the fiscal year ending March 2026, a rise from the previously estimated 25 times. This assessment anticipates a positive shift in FANUC's financial outlook, backed by the expected uptick in machine tool demand.
Citi forecasts that FANUC will report orders worth JPY180 billion and an operating profit of JPY34.8 billion for the first quarter of fiscal year 2025. The analyst also hints at the likelihood of FANUC revising its operating profit guidance upward with the release of its first-quarter results.
Despite the upgrade, Citi expresses concern about the potential for weaker-than-expected economic growth in China, which could adversely affect FANUC's performance. These recent developments indicate a more optimistic perspective of the company's near-term prospects.
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