Is Sony Ready for a Comeback?

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It takes no more than a cursory glance at Sony’s (NYSE: SNE) 5-year chart to see how badly the once-great technology giant has fared in the last few years. Failing to capitalize on new trends in consumer technology as well as other firms managed to do, Sony became increasingly irrelevant in several product divisions, which was also reflected in the company’s earnings.

However, it appears that Sony is starting to turn around with the development of several new products and the improvement of the company’s competitive ability. As such, it may be time to reevaluate Sony and its stock.

Company Overview

Sony, with a market cap of around $11 billion, used to be one of the world’s major players in consumer technology. Today it is still a very large company, active in a number of different product divisions. Its product range includes televisions, Blu-ray systems, home theaters and audio systems, cameras, video game systems and mobile phones, as well as an array of professional devices and solutions. The stock yields 2.8% and has a beta of 1.48. In the last 12 months, the stock has been battered almost 40%.

Earnings and Strategy

In the last few years, Sony’s earnings have simply been bad. Missing expectations for the last four quarters, Sony hasn’t posted a profit since Q3 2011. Q3 2012 was a real howler, with an EPS of -$2.03 against a consensus of $0.33. However, some analysts believe that Sony may now have bottomed out, a view that is partly reflected in the unusually high call-option volume for the stock. It might be the case that investors are speculating on a positive catalyst for the Japanese tech giant.

Sony’s new CEO has indicated he will be focusing on developing and strengthening three core divisions, namely Digital Imaging, Gaming and Mobile. Additionally, the company will focus on turning around its ailing TV business, which lost a great deal of market share to Samsung with a range of new sets.

However, Sony’s best hope is perhaps the market share it has yet to capture in the Mobile segment, where Samsung is again the prime competitor. The company finally appears to be releasing a phone that is competitive. The new line of Xperia phones features a very large display, as well as a quad-core processor. The new phones will be offered by AT&T in the US.

The company’s PlayStation line is due for an update soon. The game console has been overtaken in the US by Microsoft’s (NASDAQ: MSFT) hugely popular Xbox. On Black Friday for example, Microsoft sold approximately 225,000 more consoles than Sony. It is said that Sony's new console will feature an AMD (NYSE: AMD) chip as well as Ultra HD support. This partnership may boost AMD's earnings, which have been rather disappointing as of late, a fact that has been reflected in the stock's 50% plunge over the last year.

Finally, Sony’s motion picture division has a number of very successful franchises, and it is in fact the world’s number one moviemaker. Sony’s problem is thus not that it isn’t active in enough markets; quite the opposite, in fact. Sony’s challenge rather lies in consolidating its position in its core industries, in order to regain its competitive edge.

Fundamentals and Valuations

Sony’s metrics aren’t too good, with only a few bright spots for fundamental investors at the moment. The stock has a P/E of about -2, according to CNBC. However, the price to sales and price to book are both very attractive at 0.14 and 0.46, respectively. The return on equity is fairly disastrous at -21%, but the firm has quite a lot of cash and a manageable amount of debt with a LT debt to equity ratio of 37.57. While these metrics are mostly poor, an optimistic investor could conclude that the company has plenty of room to improve.

Bottom Line

The once-dominant technology giant Sony has lost a great deal of market share in most of its core divisions. The stock has been battered in the last few years and earnings have also been disappointing. However, with a number of new products and a renewed focus on its core segments, things may be turning around for Sony. It remains to be seen how things turn out in terms of profits and earnings, but the stock may be an interesting speculative bet for 2013.


DUJames has no position in any stocks mentioned. The Motley Fool owns shares of Microsoft. The Motley Fool is short Sony Corp (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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