Nintendo operating profit levels should stabilize and grow following Switch transition

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Nintendo operating profit levels should stabilize and grow following Switch transition
Credit: © Reuters.

Moffett Nathanson initiated shares of Nintendo (NTDOY (OTC: NTDOY )) with a Buy rating and JPY8,250 price target in a note to clients Wednesday.

Analysts said the company "struck a near pitch-perfect note" with the introduction of its Switch product in 2017, capturing clear competitive white space and differentiation.

However, they believe that with the Switch now in its 8th fiscal year, it "is surely preparing its swan song."

"A record 130M+ units sold create one hell of a difficult act to follow. But Nintendo's been here before," the analysts wrote. "A dozen years ago, it dropped the ball with the Wii U, the successor to the legendary Wii console. The stock suffered mightily."

"For a variety of reasons, we think this time is different. A smoother transition and more sustainable level of profits ought to mean an expanding valuation multiple for one of the video game world's best businesses," they added.

If Nintendo can execute a smooth transition and maintain much of the audience from the Switch generation, analysts believe its operating profit levels should stabilize quickly and then grow.

"Soon, perhaps as early as 1H 2024, we expect an announcement from Nintendo on 'what comes next.' As uncertainly around the hardware strategy fades, we'd expect multiple expansion to take hold, given the obvious quality of Nintendo's business and increasing demonstration of earnings stability," said the analysts.

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