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Canon Inc. Message Board

  • tradeforyourlife tradeforyourlife May 12, 2005 10:27 PM Flag


    Am I the only whose DCF calculation shows CAJ as being ridiculously undervalued? Even with very conservative assumptions (5% FCF growth) I still get that the company trades at a 25% discount...

    I think I am doing something incorrectly.

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    • Yes, definitely undervalued. If you can forgive citing analyst opinions, S&P suggests a 12-month price target of $83 (!) for CAJ, gives it 5 out of 5 possible stars and the highest possible rank for fair value, etc. I think part of the fairly slow movement is US investor recalcitrance toward the Japanese market in general, coupled with the difficulty of predicting the yen/dollar currency rates. But in terms of a company that makes a LOT of money per share, here's a huge solid company with a 13.7 P/E and a good chance for growth.

      • 1 Reply to kageglantz
      • But then it begs the question when will the market wake up? Or is this stock doomed to being unappreciated for quite a while?

        Part of the reason I am so skeptical is that because Canon is such a large, well-known company I find it hard to believe such a huge valuation disparity exists without some good reason. You would think that CAJ would be well covered.

        However, I just looked and it seems there are a grand total of 2 covering CAJ. Interesting...

    • Hooray, a new post on the Canon board! I haven't done as thorough an analysis as it sounds like you've done, but I will agree with you that Canon seems undervalued. First off, take a look at their balance sheet. No debt to speak of and over $8/share in cash. Then look at their earnings of $4/share. At $52, it trades at 13x. Take out the cash and the multiple is more like 11x. And earnings are expected to grow at a decent clip next year, too (high single digits looks very possible). They're not going to get the multiples that high tech wonder stocks get, especially as a mature large cap Japanese stock, but you can easily picture a multiple of 14 on their earnings, especially if they get some attention in the market. If you think they can earn $4.25 next year, you get 4.25x14 plus another 8 in cash, which is $68. That's 30% above today's price. The downside is limited to 10% in my opinion, so for a 3:1 potential gain/loss ratio, I think Canon is worth holding. Will its value be recongized in the next year or years? Who knows, but it's worth a shot.

      • 1 Reply to keyboard_porridge
      • Just been researching a Song digital camera and found that Canon makes them and they are generally better than the ones from Sony. This led to a more deep check of just what Canon is all about and I found that Canon:

        - is soon to pass Sony in digial camera production.

        - regained lead in Japanese printer market.

        - total sales growing faster than Sony.

        - has better PE ratio than Sony.

        It may not be 'undervalued' but it seems to be a better deal than Sony or many companies in the good ol' USA....

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