Intel Corporation (INTC) & More: What Companies Benefit (Or Not) From A Weaker Yen?

AFLAC is Japan major foreign insurer and makes 75% of its total revenue from Japanese sales. Its 4Q 2012 return on equity and profit margins have deteriorated, casting doubts over the future of the stock price. The company’s Free Cash Flow plummeted from $4.2 Billion in October 2012 to a negative $11.458 Billion today! Rarely a very good sign…

As for Coach and Tiffany, the Japanese market respectively represents 21% and 19% of their total sales. Coach stock price has taken a nosedive since April 2012, losing 40% of its value. Its P/E has dropped from over 24x earnings in March 2012 to below 14x earnings YoY. As for Tiffany’s, management has done a good job managing international capitalization structure, but in light of a yen depreciation and soaring inputs costs like gold and silver, its revenues have also underperformed throughout 2012. However the valuation metrics have only gotten more expensive: the P/E ratio rose from 18.3x in October 2012 to 21.3x today. Since early 2013, the stock has been up over 23%.This is quite surprising because it means that despite a weaker yen and all the uncertainty regarding the future of the Japanese economy (Tiffany´s greatest foreign market), the share price still hasn´t factored in these negative prospects. In my view Tiffany & Co. (NYSE:TIF) is headed for a 10-15% correction in the months to come, especially if gold prices continue to increase -which they should as long as the Fed is headed by people who believe that money printing is the answer to all the world´s problems.

What’s next for the Yen?

The recent 23% decline of the yen against the dollar in the past 4 months is the first step in its revaluation. After Primer Minister Shinzo Abe´s Liberal Party wins the upper house in the mid-year election, the Bank of Japan will take further steps to weaken the yen even more. This move might help Japan recover in the long run, which will be good for American companies that cater to the Japanese market such as Tiffany & Co. (NYSE:TIF), Coach, Inc. (NYSE:COH) and Aflac. However, it is still to be seen how interest rates will react to an expansionary monetary policy. A rise in rates could bring the debt to an unsustainable level and put a premature end to Abenomics.

Pierre De Vitton has no position in any stocks mentioned. The Motley Fool recommends Aflac, Coach, and Intel. The Motley Fool owns shares of Coach and Intel.