"We'll be the first to bring to the market a storage battery for home use, which can store sufficient electricity for about one week of use," said Fumio Otsubo, president of Panasonic, in a recent interview with The Yomiuri Shimbun.
Could this little noticed pre-Christmas announcement by the President of Panasonic (PC) be a game changer in the energy storage sweepstakes?
Personally, I hadn´t bought a Japanese share since the early 1990s, but this recent comment following Panasonic´s acquisition of Sanyo motivated me to take a look. Panasonic is not only the world´s top manufacturer of electronic products, but also a leading battery manufacturer with over $8.4 billion of energy storage device sales last year. Panasonic is the joint venture partner of Toyota (NYSE:TM) for the Prius battery, while Sanyo makes hybrid batteries for Honda (NYSE:HMC), Ford (NYSE:F) and Peugeot Citroen.
Panasonic´s President further commented that Panasonic and Sanyo had already test-manufactured a battery for home use. Panasonic plans to accelerate the development of the storage battery, which will enable households to store energy generated from their wind power generators or solar cell panels, overcoming a major obstacle to efficient alternative energy production at the household level. This revolutionary ultra high storage capacity home battery will be sold with a system to allow consumers to monitor electricity generation, usage and storage on a home based TV display. Panasonic´s Sanyo division is also a major global manufacturer of solar power cells. Panasonic is giving high priority to this project and expects to have the product available to consumers in industrial quantities in 2011.
As Panasonic is a large cap company (approx. $30 billion), this news has to be evaluated in the context of the overall attractiveness of Panasonic´s shares. I think this company is a buy for the following reasons even without considering the potential of this home storage battery system:
1) Panasonic is emerging from a brutal restructuring, having shed over 15,000 jobs including the closure of many less efficient manufacturing facilities in Japan, North America and Europe. The company currently sells one third of its production in fast growing markets in Asia (outside of Japan) and Latin America, and is expanding its manufacturing in these areas. The power of the well-respected brand name is considerable in the emerging markets among prestige conscious new consumers, and gives Panasonic and its Sanyo division a powerful tool with which to battle new competitors.
2) From a value perspective, the share is attractive. Panasonic currently quotes just above book value, even as the last earning announcement was a gain of 3 cents per share, much better than the 22 cents per share loss expected by analysts consensus. Standard and Poor's has recently increased their 2011 fiscal year estimates for Panasonic from a loss of 7 cents per share to an expected gain of 22 cents per share. The company has demonstrated several quarters of improving gross margins through cost cutting and productivity gains. Panasonic not only maintained but even increased its dividend in recent quarters, during a decline in sales and throughout the restructuring. The current dividend yield of 0.8% is attractive for investors when considered in the context of Japanese deflation and ultra low interest rates. Combined with very low price to book value, this dividend should continue to serve to place a floor under the share price.
Panasonic trades in the form of a very liquid ADR on the NYSE under the symbol PC. The analysts at Standard & Poor's have a typically conservative 12 month price target of $17 per share.
Will Panasonic´s battery for home use serve as a catalyst to propel the share well beyond this price target during 2010 as this newly announced project gains publicity? Perhaps. In any case, Panasonic is a conservatively priced value share emerging from successful restructuring with an huge existing battery business. In my opinion, Panasonic deserves a place among large capitalization international shares in a prudent investor´s portfolio.
Disclosure: Long Panasonic Corp common shares ADR