Home Entertainment, Gaming to Drive Sony: Time to Invest?


One high-growth tech stock that is still flying under the radar and should be in investors’ spotlight is Sony CorporationSNE – the Japanese gaming giant. Sony’s shares have appreciated 55.2% over the past year, as the company enjoys solid momentum in games, music, and home entertainment – which also happens to be its highest-margin segments. This compares well with the industry ‘s gain of 45.2%.

Growth Catalysts

Sony is perhaps best known for its Playstation gaming console, televisions and headphones. In gaming, the company has reportedly sold more than 73.4 million PlayStation 4 consoles since the launch of the line four years ago. The figure is almost double the estimated unit sales of Microsoft Corporation’s MSFT Xbox One consoles and quadruple of Nintendo Co.’s NTDOY Wii U console. PS4 clearly emerges as the leader in the current generation of video game consoles.

Console sales generate additional revenues from game downloads and subscription fees for online playing. In the recently reported fiscal third-quarter results, Sony’s Game & Network Services (GN&S) segment climbed an impressive 16.2% year over year. Burgeoning demand for next-generation video game consoles, explosion in eSports and the massive digital shift in the video game industry are tailwinds for the segment. Further, augmented and virtual reality might prove to be catalysts for Sony’s gaming business.

The company’s Music segment also experienced a 22.4% surge in sales on a year-over-year basis, benefiting from elevated Visual Media and Platform sales and driven by “Fate/Grand Order” application. In addition, Recorded Music sales improved supported by a steady rise in digital streaming revenues. Sony’s TV business is set to benefit from an industry upswing as more and more consumers upgrade to OLED and 4K screens.

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Home Entertainment & Sound segment was another strong growth driver for the company, with sales in the segment jumping nearly 22% on the back of improvement in product mix of televisions. This indicates a shift to high value-added models.

Semiconductors are also riding high on demand for camera chips for smartphones, including Apple’s iPhone. Semiconductors carry robust margins, and expanding image sensors demand for mobile products should boost its growth prospects.

Sony managed to chart positive growth across its operating segments in the fiscal third quarter. All in all, we can see that Sony’s high-margin segments are accelerating at a swift pace, which implies healthy earnings growth over the coming years.

Recent Projections

Sony’s fiscal third-quarter sales and operating revenues rose 11.5% year over year, while earnings beat the Zacks Consensus Estimate by a striking 64.4%.

Sony expects the momentum in Music and Home entertainment businesses to continue. Overall, the GN&S segment is likely to benefit from an expected increase in PS4 hardware sales as well as network sales. Music sales are predicted to be driven by higher-than-expected Visual Media and Platform sales, as well as Recorded Music sales. Image sensor unit sales for mobile products are likely to drive Semiconductors sales higher, while an expected increase in television unit sales will boost HE&S revenues.

Summing Up

Sony has been firing on all cylinders to boost profits and the results are slowly beginning to manifest themselves in better operating income and margin performance. Sony has created an impressive ecosystem of the PlayStation family. The company’s restructuring efforts and streamlined operations will help generate sustainable profit, thus propelling future growth.

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The industry trends are in Sony’s favor as well. The rise of autonomous cars and factory robots can help its semiconductors business move beyond smartphones. In gaming, soaring software and service revenues can extend the PlayStation 4 up-cycle and smooth out profits between hardware launches. In fact, we believe that secular trends might make Sony a solid long-term growth story.

The company’s quarterly numbers have also been coming in well ahead of estimates, and future estimates have been climbing higher. This Zacks Rank #1 (Strong Buy) company has scored consecutive, striking earnings beats over the trailing four quarters, with an average positive surprise of 79.8%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Further, analysts have revised the company’s estimates higher in recent times. The Zacks Consensus Estimate for fiscal 2018 has gone up from $2.87 recorded a couple of months back to $3.30 today. This indicates that analysts are feeling bullish about the stock.

We believe investors should keep an eye on this stock, as there is strong potential for appreciation.

Sony Corp Ord Price, Consensus and EPS Surprise

Sony Corp Ord Price, Consensus and EPS Surprise | Sony Corp Ord Quote

Another stock worth a look is Snap-On Incorporated SNA , which carries a Zacks Rank #2 (Buy). Snap-On has an average positive surprise of 1.5% in the trailing four quarters, beating estimates all through.

The Hottest Tech Mega-Trend of All                

Last year, it generated $8 billion in global revenues. By 2020, it’s predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce “the world’s first trillionaires,” but that should still leave plenty of money for regular investors who make the right trades early.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



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