Canon Inc. (CAJ) is one of the world's leading designers, manufacturers, and marketers of office equipment, cameras, and optical products. The company's investment in digital cameras has given it an industry leadership position and has been a significant contributor to growth. However, margins have fallen recently due to higher raw materials pricing. We also believe price competition is increasing in the digital camera market, as has been the case for several years in printers.
Canon is currently trading at 11.8x estimated 2008 EPADR, a premium to the industry mean and median. Although we believe that some premium is warranted given its strong position in the digital camera business, we don't see room for meaningful appreciation from current levels. The diversified nature of Canon's business portfolio makes sustained growth difficult, and at the same time, makes comparison to its U.S.-based peers more difficult.
Increasing price competition in the printer market and slowing demand for some of its optical products are a matter of concern, as are flat profit margins. We, therefore, maintain a Hold rating to reflect the stock's full valuation and set our six-month price target to $46.50. This price is based on a P/E multiple of 12.1x our EPADR estimate of $3.85 for 2008, a small premium to the industry mean and median.
Read the full analyst report on CAJ
Get real-time market insights and profitable stock recommendations from the team of analysts at Zacks Equity Research. See all todays Analyst Blog entries on Zacks.com.