We have downgraded our rating on
Fujifilm Holdings Corporation
) from Neutral to Underperform based on the plight of rising raw
material costs and yen depreciation.
The raw material used by the photographic product maker
primarily includes silver and aluminum, among others. These
products are highly volatile, and therefore fluctuating demand may
lead to rise in prices. Hence, such surging raw material costs are
likely to hurt the company's profitability, posing a major risk to
Fuji's operating margins and thereby future earnings.
Also, a significant portion of the company's internationally
generated income gets affected due to exchange rate fluctuations,
resulting from depreciating yen. Furthermore, Fujifilm is exposed
to global economic fluctuation, which continues to pressurize
Fujifilm's revenue from international business.
On the other hand, effect of the Great East Japan earthquake and
floods in Thailand in 2011 remain a lingering concern, which may
continue to jeopardize Fuji's domestic demand as well.
Mention may be made of a highly competitive industry wherein
Fuji's low end digital camera market faces firece rivalry from
competitors--who have been developing, launching and marketing
advanced digital products. Moreover, overcapacity in photo-imaging
and photographic films sector imposes pressure on the company's
However, hope survives as we witness Fujifilm's diversification
beyond the domestic photographic film market, especially the
emerging regions. This diversification strategy is anticipated to
bolster the company's financial results over the forthcoming
quarters, strengthening the company's demand across these
Further, to counter rising expenses, the company focuses on
structural reform programs ensuring margin management toward a
cost-effective business. The company continues to proactively
invest in priority business fields targeted to position Fujifilm as
a sustained and profitable corporation with large market share.
We believe that the company's huge talent pool and envious brand
equity will support its product portfolio in response to growing
market needs. Moreover, the company's continuous focus on
technological innovation along with strong sales promotion look
impressive enough to lay a solid foundation for the company's
Fujifilm is engaged in developing, manufacturing and marketing
traditional and digital imaging products and competes with another
The company has a Zacks #5 Rank, implying a short-term (1-3
months) Strong Sell rating.
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