Nintendo ADR (OTC:NTDOY) stock rose 1.46% (As on July 7, 11:01:03 AM UTC-4, Source: Google Finance) after Citi analysts upgraded shares of the company to Buy from Neutral ahead of its Q1 results, raising the price target on the stock to ¥8,100 from ¥6,200 (¥1 = $0.0069).
The analysts told investors that they are looking for Nintendo profit growth amid the transition to new hardware. The analysts have had many chances to meet with Nintendo management, including CEO Shuntaro Furukawa. These meetings have prompted changes in the thinking about new hardware, and the analysts lifted the OP forecast for the period of transition to the new hardware. The firm also believes the discount previously typical of a platform company is no longer appropriate.
The analysts had thought software sales would be weak in the final phase of the Switch lifespan and that the shares could decline after Q1 results (when we expect a significant OP decline. However, the analysts now see a greater chance that any decline after Q1 results will be limited and temporary.
On the other hand, the company is now in the growing season in North America, demand in the fourth quarter is expected to be driven primarily by summer crop harvest and storm damage replacement, which the company is expecting to be lower than the exceptional demand the company experienced in last year’s strong fourth quarter. The potential impact from continuing drought conditions could provide additional demand support. The company expects sales volume in Brazil to increase in the fourth quarter, supported by the new government financing program that was recently announced. Demand across other international markets continues to be supported by positive agricultural market fundamentals and continuing global concerns over food security and global grain supplies.
Further, revenues for the third quarter of fiscal 2023 were $164.6 million, a decrease of $49.7 million, or 23 percent, compared to revenues of $214.3 million in the prior year third quarter. The majority of the decrease came from the irrigation segment as infrastructure revenues were down slightly. Operating income for the quarter was $27.0 million, a decrease of $8.2 million, or 23 percent, compared to operating income of $35.2 million in the prior year third quarter. Operating margin was 16.4 percent of sales, consistent with the prior year quarter. Operating margin performance was supported by gross margin improvement in both business segments while operating expenses were comparable to the prior year third quarter.