Investors are getting increasingly positive on Japanese technology giant Sony due to its booming PlayStation gaming business, which could help bolster the company’s earnings to a new record level.
On Friday, Nomura raised its price target for Sony’s stock to 8,000 Japanese yen, or $71.43, marking a more than 27 percent increase from Monday’s opening price. In the previous month, Credit Suisse upgraded its outlook on the shares from “neutral” to “outperform.”
The average price target from analysts on Sony’s shares is 7,730.50 yen, which if realized, would mean a 23.7 percent increase, according to data.
Also, expectations have been rising quickly. Only three months ago, the average price target from the stock among analysts was 6,587.27 yen. Sony shares are already higher over 22 percent so far in 2018.
Nomura analyst Yu Okazaki said in a note that was published on Friday that Sony’s business model is switching to focus on content, citing the good start of new PlayStation 4 game “Spider-Man” and movie “Venom,” which are both produced by the company’s content studios.
“Strong performance in these content-related areas means that near-term earnings have probably been better than we had previously expected,” said Okazaki in the note.
The analyst also added that a relatively stronger dollar has been “a concern” for hardware manufacturers like Sony, but the company is likely to sustain growth by “sticking to its high value-added strategy.”
The games business, which accounts for more than 24 percent of the total revenues, increased 35.6 percent year-on-year in the three months that ended on June 30. Sony has seen growth on its image sensor business, which sells to smartphone makers for cameras within the devices.
High expectations for these businesses have led analysts to predict that the Japanese giant could see a record operating profit for the fiscal year that ends on March 31, 2019. According to surveyed analysts, Sony would report an operating profit of 794.71 billion yen, beating the record 729.9 billion yen reported in the previous fiscal year.
Even so, there are some risks to the business. A slowdown in the smartphone market could hamper demand for components that Sony makes like image sensors and increased competition in other categories could drag on the stock.
“Sony faces intense rivalry in each of its product lines including television, game platform and smartphone and services across the world. Failure to create new products that are in sync with customer demand may reduce sales of the company’s products,” Zack’s Investment Research said in a note that was published on October 9.
“Each of these markets witnesses stiff price wars, continuous product innovations and changing customer preferences, which put immense pressure on Sony to come up with better products so as to sustain the competition,” said the note.