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Nintendo a buy even if Switch sales are flat, Jefferies says



Nintendo Switch (Japan sales)AP/Koji

  • One of Wall Street’s most bullish Nintendo
    analysts raises his forecast for the video-game maker’s stock
  • Jefferies analyst Atul Goyal believes operating profits
    of Nintendo could triple in three years. 
  • Nintendo will launch mobile-game Dragalia
    Lost, Switch Online and 1P Switch games soon and gain
    China market share.
  • Watch Nintendo
    trade in real-time here

Jefferies, one of the biggest Nintendo
bulls on Wall Street, says shares of
the Japanese game maker could soar 80% —
even if Switch sales are flat.

“We like Nintendo as, we believe, it offers the best earnings
growth at the cheapest valuations in the sector,” Atul Goyal
and his colleague Chengyao Zhang,
analysts from Jefferies, said in a note sent out to
clients on Monday.

Even with a conservative estimate for flat Switch
sales, the duo says operating profits
could triple in three years. “In 1Q, operating profits grew
c. 90% year over year despite no major game launches and no
hardware growth,” they said. “We believe Switch hardware sales
can grow c.10-12% year over year for the next 3-4 years.”

They added: “We conservatively assume that hardware
will not grow, yet growing installed base is set to ensure
software sales growth and, hence, profit growth.We expect
more bundled software this year and a price cut as well as new
variants next year.”

The Jefferies analysts also believe digital
downloads, digital-in-game-spending, and digital
subscriptions should see margin expansion
mobile-game Dragalia Lost, Switch Online,
and 1P Switch games will soon be launched and enter the
Chinese market.

Goyal and Zhang maintained a “buy” rating and raised their
target price to ¥65,100 — 80% above where shares are
currently trading. 

In late July,
Nintendo reported
second-quarter sales of 168.2 billion yen
and a net profit of 30.6 billion yen ($274.9 million), beating
Wall Street expectations.

Nintendo shares were down 11% this year. 



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