Canon’s management admitted that it wasn’t able to win the war against smartphones, and is expecting flat sales of its point and shoot category. But for FY13, management is expecting a 14% growth in net profit and 27% growth in operating profit. This suggests that management is counting DSLR sales growth, which bodes well with our investment thesis. For the recent quarter, Canon reported a 0.4% decline in quarterly profits, which was down mainly due to the strengthening Yen.
Even though Sony is venturing into DSLRs, it is more likely to remain in troubled waters. It is one of the less preferred brands in professional photography, and it is yet to prove its imaging capabilities. Furthermore, the availability and pricing of its interchangeable lenses has been detrimental to its adoption. In my opinion, Sony’s lack of competitive pricing and innovation in DSLRs should also hurt its profitability.
Besides cameras, Canon also manufacturers printers and provides printing solutions to large scale businesses. This somewhat hedges Canon’s risks and rewards, and eliminates the risk of sudden obsolescence. The company operates with little or no debt, and has $7.65 billion in cash and cash equivalents, which highlights its strong balance sheet. Shares of Canon appear to be undervalued with a forward P/E of 14.6, and analysts expect its EPS to grow 20.4% over the next year. Keeping the growth prospects in mind, I think Canon is a good stock to hold.
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