On Tuesday, Goldman Sachs (NYSE:GS) adjusted its stance on Shiseido Co Ltd (4911:JP) (OTC: SSDOY), upgrading the company's stock from Sell to Neutral. The firm also revised its price target for the stock to ¥3,400, a decrease from the previous ¥4,100 target.
This adjustment comes after a reassessment of the company's financial outlook, particularly focusing on projected core operating profit margins and sales growth rates.
The analyst at Goldman Sachs provided a detailed rationale for the changes, noting a reduction in core operating profit estimates for the fiscal years 2024 through 2026. These projections were decreased by 15%, 12%, and 16% respectively.
The revision is based on second-quarter results which prompted lowered forecasts for Shiseido's performance in China-related markets—including travel retail and other segments—by 17% to 32% from fiscal year 2024. Additionally, expectations for the Americas and Europe were scaled back by 21% to 30% and 27%, respectively.
Shiseido is anticipated to experience year-over-year profit growth of 39%, 42%, and 6.3% for the fiscal years 2024 through 2026. The analyst highlighted that while significant profit growth is expected in fiscal year 2025, mainly in Japan, due to global cost reductions, the growth in core operating profit is likely to slow down in fiscal year 2026 with a forecasted sales growth of only 3% year-over-year.
Regarding the company's strategic direction, Shiseido is slated to unveil a new business strategy at the end of November 2024. However, there are indications that the improvement in sales growth and core operating margin may not accelerate as quickly as under the current strategy.
The revised 12-month target price of ¥3,400 reflects these considerations. Goldman Sachs now views Shiseido's stock valuation as more aligned with its profit growth prospects. The analyst also compared Shiseido's forward price-to-earnings ratio for fiscal year 2025, which is now slightly lower than that of L'Oreal—a major global competitor that reported robust results in the first half of the year.
InvestingPro Insights
As Shiseido Co Ltd (OTC: SSDOY) navigates through its financial reassessment and strategic shifts, current InvestingPro data and tips provide a deeper look into the company's market position and valuation. With a market capitalization of $8.95 billion and a gross profit margin of 74.86% over the last twelve months as of Q2 2024, Shiseido showcases an impressive ability to retain earnings from sales. However, the company's high earnings multiple, with a P/E ratio of 127.82 and an adjusted P/E ratio of 190.43 for the same period, indicates a valuation that may be seen as steep by investors.
Despite recent price declines, with the stock trading near its 52-week low and experiencing a significant 29.79% price drop over the last three months, Shiseido remains a prominent player in the Personal Care Products industry. This is reflected in its consistent dividend payments over the past 33 years, signaling a commitment to shareholder returns even during challenging market conditions. InvestingPro Tips further highlight that Shiseido operates with a moderate level of debt, which could provide some financial stability as it unveils its new business strategy later in the year.
For those interested in exploring additional insights and metrics, InvestingPro offers more tips on Shiseido, which can be accessed at https://www.investing.com/pro/SSDOY. These tips could further inform investment decisions, especially as the company prepares to announce its strategic direction and navigate the competitive landscape.
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