Deutsche Bank Just Downgraded the World's Hottest Stock

Earlier, Deutsche Bank downgraded the world's hottest stock Nintendo (OTC: NTDOY) from Buy to Hold, saying it is time for a pause.

Analyst Han Joon Kim called Pokémon Go a 'genuine phenomenon' and noted the game has added added US$19bn to the value of Nintendo is just over a week. The market is now valuing Nintendo at US$27bn in market capitalization (ex-cash & treasury shares at BV), on a par with global leaders such as EA and ATVI that respectively have 5% global video game market share vs. Nintendo’s current 2%.

"While we have argued there is potential for its non-conformist past to be repeated and for the NX console to revolutionize the gaming sector, we need to see further hard evidence to model in significant further upside and therefore downgrade the shares to Hold," the analyst said.

Kim said the stock price now prices in a large portion of the market share recovery story, which they believe is readily achievable from leveraging its IP to some degree. "Combined with mobile game launches and market share recovery in console via NX, we are willing to model in a market share recovery by FY3/2019 to ~5%, but not towards the 10% level that Nintendo enjoyed in 2009 when Wii revolutionized the game industry," the analyst commented.

While downgrading the stock, the analyst does outline a maximum bull thesis leads to a value of Y51,400 (85% upside) if Nintendo can achieve 10% global market share. On the opposite end, they see 42% downside to our bear case should the stock fall back to the top end of its pre-Pokémon Go launch.

"While risk/reward may still look skewed to the positive, we would ascribe a lower possibility to our bull thesis," Kim said. "Upcoming events should help firm up our views further, including 1) roll-out of Pokémon Go in other regions (especially Japan), 2) smartphone version of Animal Crossing and Fire Emblem release in the next two months, and 3) possible event unveiling its new NX console, in or by 4Q."

The firm set a price target of Y30,000 up from Y23,600.

For an analyst ratings summary and ratings history on Nintendo click here. For more ratings news on Nintendo click here.

Shares of Nintendo closed at $33.38 yesterday.

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