On Friday, Jefferies initiated coverage on Fujitsu Limited (6702:JP) (OTC: FJTSY), presenting a Buy rating along with a price target set at JPY 3,700. The financial services company positions Fujitsu favorably, valuing it at a premium compared to its peers. This optimistic stance is based on several key factors identified by the analyst.
Fujitsu’s comprehensive transformation strategy was highlighted as a positive change, signaling a modernization effort from the top down. The company's current mid-term plan is seen as a clear indicator of its future direction, with an emphasis on Fujitsu Uvance, Modernization, and Consulting services expected to be the main drivers of future earnings.
The company's financial health is also showing signs of improvement, with gradual increases in Return on Invested Capital (ROIC) and Economic Value Added (EVA). These metrics suggest Fujitsu is managing its capital more efficiently than its competitor NEC. Additionally, Fujitsu is actively returning value to its shareholders, undertaking share buybacks worth JPY 180 billion with the goal of achieving a 102% total shareholder return for the fiscal year.
Jefferies also notes that while Fujitsu is not currently considered a pure System Integrator (SI) company, it has plans to exit the Mainframe and Unix server business by 2035. This strategic move aligns with a broader shift towards IT Services, a sector where Jefferies now regards Fujitsu as their top pick.
In other recent news, Fujitsu Limited has seen significant developments, including robust financial performance and positive analyst assessments. Citi recently upgraded Fujitsu's stock from Neutral to Buy, raising the price target to JPY3,400 from the previous JPY3,000.
The upgrade was influenced by Fujitsu's successful restructuring efforts over the past five years, which have resulted in growth in margins and Return on Invested Capital (RoIC). The restructuring also led to an increase in Return on Equity (RoE), rising to 15% from 9% over the past five years.
In terms of earnings, Fujitsu reported a strong start to FY 2024 with a 7.8% year-over-year increase in revenue to ¥501.6 billion in its Service Solutions segment. This growth was primarily driven by high demand for DX and modernization services in Japan. Adjusted operating profit for Service Solutions also saw a significant increase, reaching ¥34.9 billion.
These recent developments reflect Fujitsu's commitment to restructuring and its strategic focus on expanding its Service Solutions offerings. Analysts from Citi anticipate that the company's shareholders' equity will remain stable at nearly JPY1.8 trillion, with an expected RoE of 17% in the fiscal year ending March 2027.
InvestingPro Insights
Recent data from InvestingPro reinforces Jefferies' bullish stance on Fujitsu Limited (OTC: FJTSY). The company's market capitalization stands at $38.51 billion, reflecting its significant presence in the IT Services industry. Fujitsu's P/E ratio of 21.89 and a PEG ratio of 0.6 for the last twelve months as of Q1 2025 suggest that the stock may be undervalued relative to its growth potential, aligning with Jefferies' premium valuation.
InvestingPro Tips highlight Fujitsu's strong financial performance and shareholder-friendly policies. The company has raised its dividend for 6 consecutive years and maintained dividend payments for 21 consecutive years, underscoring its commitment to returning value to shareholders—a point emphasized in the Jefferies analysis. Moreover, Fujitsu's stock is trading near its 52-week high, with a remarkable 80.27% price total return over the past year, indicating strong market confidence in the company's transformation strategy and future prospects.
These insights complement Jefferies' assessment of Fujitsu's improving financial health and strategic shift towards IT Services. For investors seeking a deeper understanding of Fujitsu's potential, InvestingPro offers 12 additional tips, providing a comprehensive view of the company's strengths and market position.
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