Nintendo Lifted to Outperform by Credit Suisse – Barron’s
Credit Suisse has upgraded Nintendo (7974.JP) to outperform from neutral as the broker now expects the Japanese video games maker to sell more of its Switch consoles over a longer sales cycle.
The broker also hiked its target price from JPY40,000 a share to JPY55,000, implying almost 44% upside. Credit Suisse now forecasts Nintendo to sell 130 million Switch consoles through to 2022, up from 70 million, as it says the device sells like a handheld console rather than a traditional console. Here’s Credit Suisse analyst Keiichi Yoneshima in his own words:
As Nintendo’s Switch is a unique game platform for use as either a console or handheld, there was initially some uncertainty over whether its sales cycle would more closely resemble that of a console or handheld. Although the Switch is currently categorized as more of a console, we expect it to sell like a handheld. Many users are in fact using the Switch as a portable according to a Famitsu survey of users. We previously projected a sales peak at about three years after launch (i.e., in FY3/19) on the assumption of a console-like sales cycle. Now that the Switch looks more likely to sell like a handheld, we update our sales forecast to reflect a longer sales cycle. We now expect the Switch to achieve peak sales about five years after launch (i.e., around FY3/20–21) like a typical handheld game device. We also raise our peak-year sales forecast from 25mn to 31mn units.
Meanwhile, Jefferies analyst Atul Goyal says that the release of two blockbuster games on Switch is further evidence of the console’s growing popularity.
Chinese tech giant Tencent (700.HK) announced last week it will launch its most popular game ‘Honor of Kings‘ on the Nintendo Switch. Prior to that, Grand Theft Auto creator, Rockstar, announced plans to launch its detective adventure game, L.A. Noire. Here’s Goyal in his own words:
It was a surprise when Take Two studio Rockstar (creator of GTA and Red Dead Redemption) announced L.A. Noire game for Switch (in addition to launch on PS4 and XBO). This is a sign that Nintendo platform is expected to be big and attractive enough for third party developers to dedicate resources towards game development for Switch.
Goyal rates Nintendo a buy with a target price of JPY59,100.
Nintendo shares, which last traded at JPY38,250 apiece, have gained 56% this year.