Goldman: The Risk of Not Owning Sony

Goldman Sachs turned bullish on Sony (SNE) in early January when it upgraded it to a "buy" from "neutral" and gave it a ¥6,200 target ($51.11 at ¥121.3/$1; from ¥5,150 prior). Sony has already taken out that target, closing yesterday at ¥6,360 ($52.43), but Goldman says there's still a lot of upside.

In fact, Goldman published a research summary yesterday entitled: "Gauging the risk of not owning Sony" (translated in English).

Details of the summary as provided by Japan's Kabushiki Shimbun Digest (Japanese language source) include:

• Goldman recognizes Sony has gained 40% since hitting a bottom last October
• Its electronics division's "favorable" performance (qtr. ended Dec. earnings) and its decision to cut capex in semis have been priced in
• However, it notes 4 positive reasons for plenty more upside:
  (1) Expectation of higher profits in its electronics division
  (2) Materializing of balance sheet reform
  (3) Market's undervaluation of its gaming division
  (4) Improving business environment for electronics

By the way, I would add a 5th reason. The weak yen! This does benefit ordinary shareholders over ADR holders, but long-term investors will be rewarded eventually.

The summary did not contain mention of a revision to its target share price listed above. Intra-day as of 11:35, Sony's ADRs are trading down about 1% to $52.35, mostly in line with the Tokyo close. The Goldman summary was published about 30 minutes before the market closed and did not have any noticeable impact as Sony traded flat into closing.

Related: Sony Soars on Goldman Upgrade [Jan. 9]

Sony Corp. (SNE) 1-year chart:

Dislcosure: The author does not own shares of any companies mentioned in this article.

Comments

[Tom B:]

"Goldman recognizes Sony has gained 40% since hitting a bottom last October" File under "Department of Meaningless Statistics".

"(3) Market's undervaluation of its gaming division" I think this segment is fully valued. I don't know anyone who expects XBox or Wii to savage PS3 over the long term. PS3 has been weak recently due to its delayed release.

That said, I'm not super-negative on SNE; I just wouldn't buy any. Put your money in a more focussed company, like CAJ.

2007 Feb 22 01:57 PM

[Malkiel:]

Sony is a company with a 40-year history of making fabulous products and killing themselves with hideously bad judgement about marketing, licensing, etc. (remember Beta-vhs? Remember the minidisc that could have replaced the floppy? Remember SACD high-def music discs? Notice the tortured progress of Blu-ray and PS3?). No, by all means buy Sony electronics but don't buy into the company through its stock...

2007 Feb 22 05:50 PM