On Tuesday, UBS initiated coverage on Ajinomoto Co., Inc. (2802:JP) (OTC: AJINY) stock with a Neutral rating and set a price target of JPY6,300.00. The firm highlighted the company's focus on 'AminoScience' and the anticipated recovery in its healthcare segment, which is expected to contribute to Ajinomoto's growth potential.
UBS forecasts a 9% year-over-year increase in Ajinomoto's business profit for the fiscal year ending March 2025 (FY3/25) and projects a compound annual growth rate (CAGR) of 13% from FY3/25 to FY3/29.
The analyst pointed out that as the food industry faces decelerating profit growth due to the tapering off of price hikes, Ajinomoto stands out as a company with accelerating growth prospects.
Despite the positive outlook on growth, the coverage noted that Ajinomoto's stock carries a high beta and price-earnings ratio (PER), indicating that the market has already priced in stronger growth expectations than before.
UBS emphasized that for Ajinomoto to achieve further share price gains, it will be crucial for the company to meet its ambitious Medium-Term Plan (MTP) business profit CAGR target of at least 15% by rapidly returning to growth.
Additionally, UBS suggests that Ajinomoto can benefit from improving the quality of its investor relations and forecasting accuracy, which in turn could help lower the stock's beta and potentially lead to better stock performance.
In other recent news, prominent food and chemicals corporation Ajinomoto has had its share target upgraded by Bernstein SocGen Group. The firm has increased the price target from ¥7,300 to ¥7,400, maintaining an Outperform rating on the stock.
This adjustment is largely attributed to the potential of Ajinomoto's Asia Seasoning & Foods division, which is the company's largest business unit and a significant contributor to its Business Profit (BP (NYSE:BP)) growth.
Bernstein SocGen Group anticipates a growth narrative driven by emerging markets, including volume increases and premium product trading. The firm also noted the benefits of increasing operational leverage, active restructuring efforts, and favorable conditions due to raw material tailwinds. These factors are expected to positively influence Ajinomoto's performance.
Furthermore, Ajinomoto's divisional BP is projected by Bernstein SocGen Group to grow at an 8% compound annual growth rate (CAGR) through the fiscal year ending March 2027. This growth is anticipated to contribute to 22% of Ajinomoto's overall BP growth over the same period.
The updated price target reflects the firm's confidence in Ajinomoto's strategic positioning and its ability to seize market opportunities, particularly in the Asia Seasoning & Foods business. These are some of the recent developments concerning Ajinomoto.
InvestingPro Insights
As UBS initiates coverage on Ajinomoto Co., Inc. with a keen eye on its growth potential, InvestingPro data and tips offer additional insights that may be valuable to investors. Ajinomoto, with a market capitalization of $18.23 billion, is trading at a price-to-earnings (P/E) ratio of 33.79, reflecting a premium valuation which aligns with UBS's observation of high growth expectations being priced in. The company's adjusted P/E ratio for the last twelve months as of Q4 2024 stands slightly lower at 31.79, which could suggest a slight easing in valuation concerns over time.
On the growth front, Ajinomoto has shown a robust revenue growth of 5.89% over the last twelve months as of Q4 2024, with an even more impressive quarterly revenue growth of 11.79% in Q4 2024, indicating a strong and potentially accelerating business momentum. This is complemented by a solid gross profit margin of 35.54%, which supports the idea of a healthy underlying business capable of sustaining its growth trajectory.
InvestingPro Tips highlight that Ajinomoto's management has been actively involved in share buybacks and has a commendable history of raising its dividend for 3 consecutive years. Additionally, the company has been able to maintain dividend payments for 33 consecutive years, which speaks to its financial stability and commitment to shareholder returns. For investors interested in a deeper analysis, there are 11 additional InvestingPro Tips available that shed light on Ajinomoto's financial health and market position. To explore these insights further, consider using coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
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