Jefferies Starts Sony Corp. (SNE) at Buy; Needs to Exit Most Electronics Markets

May 21, 2013 7:00 AM EDT
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Price: $106.01 --0%

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Jefferies initiates coverage on recent Dan Loeb activist target Sony Corp. (NYSE: SNE) with a Buy rating and Y2,630 price target.

"We believe its #2 position in Insurance (I) and Content (C) creates all the value there is, with Electronics (E) its Achilles heel and worth zero, barring the sale of brands like Playstation," analyst Atul Goyal states. "In our view, it needs to exit most E markets. Meanwhile, we assume a 50% probability of SG&A efficiencies (Sony at 25%, peers at 16%) to enhance value. Our estimated iCE and SG&A savings add up to a Y2,630 PT. BUY."

Exiting Electronics would nearly double the company's profits, according to the firm's analysis. "Refining Sony's classification into I (Insurance), C (Content) and E (Electronics) helps to see the forest from the trees," the analyst explains. "Electronics accounts for 75% of revenues, but it is the i and C that generate all the profits, while E losses depend on the Yen. If Sony did not have the Electronics business, its aggregate OP for the last 5-10 years would have been nearly double the reported number, by our estimates."

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

Shares of Sony Corp. closed at $20.97 yesterday.

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Daniel Loeb, Jefferies & Co, Third Point LLC