Sony Corporation (SNE) and Canon Inc. (CAJ) are the undisputed top players of their respective markets in the consumer electronics sector. While SNE is one of the world’s largest manufacturers of electronic products, CAJ is one of the leading manufacturers of image sensors.
The global consumer electronics market is expected to witness considerable growth on a significant increase in consumer expenditure on user-friendly electronic devices that cater to their daily needs. An important factor propelling this demand is the ongoing work-and-learn-from-home trend. This should continue driving the call for electronic products such as laptops, earphones, printers, and other related items.
Against this backdrop, SNE and CAJ should remain at the forefront of their industries and see significant revenue growth.
But while SNE returned 78% over the past year, CAJ gained 4.2%. And, in terms of their past nine-months’ performance, SNE is the clear winner with 44.6% gains versus CAJ’s 7.6% returns. But which of these stocks is a better pick now? Let’s find out.
Last month, Sony Music Entertainment, a wholly owned subsidiary of SNE, agreed with Kobalt Music Group Ltd. to acquire its recorded music label, distribution business for independent recording artists, and Kobalt Neighboring Rights. The acquisitions should enhance SNE’s global service offerings and expand its distribution footprint.
This month, CAJ introduced its first line of 4K UHD PTZ cameras–the CR-N500 and CR-N300– for indoor live-streaming, and the outdoor CR-X500. It also introduced its RC-IP100 remote camera controller that supports IP and serial connections and can operate various camera functions. This new cutting-edge digital imaging equipment should allow the company to provide creative solutions for its customers.
Recent Financial Results
During the third quarter, which ended December 31, 2020, SNE’s total sales increased 10.2% year-over-year to ¥2.7 billion. The company’s operating income grew 19.7% its year-ago value to ¥359.22 million. Its EPS rose to ¥301.09 from ¥187.02, and it reported Electronics Products & Solutions’ revenue of ¥ 648.99 million during this period.
In comparison, CAJ’s net sales declined 12.1% year-over-year to ¥3.16 billion in the year ended December 31. Also, the company’s operating profit declined 36.6% from its year-ago value to ¥ 110.55 million, while its net income declined 33.3%. The company’s operating expenses decreased by 11.9% year-over-year to ¥1.27 billion, due mainly to better cost control across the entire group.
Past and Expected Financial Performance
SNE’s EPS and tangible book value grew at CAGR of 27.6% and 24.3%, respectively, over the past three years. In comparison, CAJ’s EPS and tangible book have declined at CAGRs of 29.1% and 3.9%, respectively over this period.
Analysts expect SNE’s revenue to increase 20.2% in the current quarter, 10.4% in the current year and 3.5% next year. Its EPS is estimated to increase 210% in the quarter ending March 30, 2021, and 100.5% in fiscal 2021.
CAJ’s revenue is expected to increase 12.2% in the current quarter, and 7.4% in 2021. A consensus EPS estimate of $0.29 for the quarter ending March 30, 2021 represents a 52.6% improvement versus the same period last year.
SNE’s trailing-12-month revenue is more than two times CAJ’s. But CAJ is more profitable with a gross profit margin of 43.5% versus SNE’s 27.9%.
However, SNE’s ROE and ROA of 21.3% and 2.5%, respectively, compare favorably with CAJ’s 3.4% and 1.5%.
In terms of trailing-12-month price/sales, SNE is currently trading at 1.53x, 98.7% higher than CAJ, which is currently trading at 0.77x. Also, its trailing-12-month ev/sales of 1.68x is 95.3% higher than CAJ’s 0.86x. SNE is also more expensive in terms of trailing-12-month price/cash flow (8.20x vs 7.30x).
Even though SNE looks much more than CAJ, it’s worth paying this premium considering SNE’s significantly higher earnings growth potential.
SNE has an overall A rating, which equates to a Strong Buy in our proprietary POWR Ratings system. However, CAJ has an overall B rating, which translates to Buy. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
Both SNE and CAJ have a Momentum Grade of B. This is in sync with their price returns over the past year.
In terms of Growth Grade, SNE has a B, which is consistent with its expected growth in earnings and revenue. In comparison, CAJ has a Growth Grade of C.
SNE has an A Sentiment Grade, which is in sync with the analysts’ expectations regarding its earnings and revenue growth. In comparison, CAJ has a B Sentiment Grade.
Beyond what we’ve stated above, our POWR Ratings system also rates SNE and CAJ for Quality, Stability, and Value. Get the ratings for SNE here. Also, click here to see the additional POWR Ratings for CAJ.
While SNE and CAJ are good long-term investments considering their market dominance and brand recognition, SNE appears to be a better buy based on the factors discussed here. Even though CAJ is the relatively cheaper option by which to bet on the immense growth potential of the consumer electronics market, SNE is a proven winner, and we think its premium valuation is justified given its earnings and revenue growth potential.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. If you’re looking for other top-rated stocks in the Entertainment – Media Producers industry, click here. Also, you can access the other top-rated stocks in the Technology – Hardware here.
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
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SNE shares were trading at $104.72 per share on Friday afternoon, up $2.07 (+2.02%). Year-to-date, SNE has gained 3.58%, versus a 5.10% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
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