On Wednesday, an analyst from Macquarie adjusted the outlook for Nomura Research Institute Ltd. (4307:JP) (OTC: NRILY), downgrading the stock from Outperform to Neutral, despite raising the price target to ¥4,500 from ¥4,000.
The stock's recent performance has shown significant gains, outpacing the TOPIX index with a year-to-date increase of 16.1%, a three-month surge of 30.7%, and an 11.8% rise since the market downturn on August 5, 2024.
The analyst noted that Nomura Research Institute's shares have benefited from a shift towards domestic growth companies following a strong rally in semiconductor-related stocks earlier in the year. Additionally, there was speculative buying in anticipation of the company's inclusion in the Nikkei 225, which was confirmed on September 4, 2024. Following the global market crash on August 5, investors have shown a preference for established companies perceived as having lower risks of missing guidance or experiencing earnings slowdowns.
However, the current valuation of Nomura Research Institute's shares is considered high relative to its peers. The closing price on September 10, 2024, was ¥5,206, which corresponds to 33x FY25 P/E and 32x FY26 P/E based on Macquarie's revised estimates. These multiples exceed the global IT solution/consulting industry average P/E ratios of 27-29x for FY25. The analyst suggests this indicates that the stock may be somewhat overvalued at present.
The recent performance of Nomura Research Institute's stock has been robust, with the company's share price having surpassed the TOPIX index by a considerable margin. The positive momentum was driven by strategic investor positioning and a market preference for stable growth names amidst broader market volatility.
In conclusion, the Macquarie analyst's revision reflects a cautious stance on Nomura Research Institute's stock valuation after its notable outperformance, despite the increased price target. The new neutral rating signals a shift in expectation from the previous outperform rating, taking into account the company's current market valuation and recent share price movements.
In other recent news, Nomura Research Institute has been the subject of an analyst report from Morgan Stanley (NYSE:MS). The firm has adjusted its stance on the company's stock, downgrading it from Overweight to Equalweight, while simultaneously raising the price target to JPY 5,200 from JPY 4,700. Morgan Stanley projects a fiscal year 2025 operating profit of JPY 137.5 billion for Nomura Research Institute, a 14% year-over-year increase, with sales growth in consulting and IT infrastructure being key contributors.
Further, the firm expects the company's gross profit margin to improve to 36.1%, a 0.7 percentage point increase. In terms of operating profit, Morgan Stanley estimates JPY 133.9 billion in Japan, a 12% increase, and JPY 3.6 billion overseas, a significant rise from the previous year.
InvestingPro Insights
Adding to the analysis provided by the Macquarie analyst, InvestingPro offers additional insights into Nomura Research Institute Ltd. (NRILY). With a market capitalization of $21.11 billion and a high P/E ratio of 35.2, the company's valuation metrics reinforce the notion of a rich valuation as highlighted by the analyst. The InvestingPro data also shows a Price/Book ratio of 7.37 as of the last twelve months leading up to Q1 2023, which suggests that the stock is trading at a premium compared to the book value of its assets.
From an investor's viewpoint, two InvestingPro Tips are particularly noteworthy. Firstly, NRILY has raised its dividend for five consecutive years, indicating a commitment to returning value to shareholders. Secondly, the stock is trading near its 52-week high, with the price at 96.84% of this peak, reflecting strong recent performance and potentially limited upside in the near term if the market corrects. These factors should be considered by investors who are weighing the current valuation against the company's performance and potential for continued growth.
For those seeking a deeper dive into Nomura Research Institute's stock, additional InvestingPro Tips are available, including insights on the company's liquidity, debt levels, and historical returns over various periods. In total, there are 15 InvestingPro Tips listed for NRILY, providing a comprehensive overview for potential investors.
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