As we watch the Winter Olympics in Sochi, we might recall that Seiko Epson (6724.T) came to prominence at the 1964 Tokyo Summer Olympics. Seiko, an independently run timekeeping company, was selected as the official timekeeper of those games. One of the requirements was printing out race times. Thus was born Seiko Epson, and the name has become synonymous with printing ever since. Today, is Seiko Epson going for the gold when it comes to earnings?
Printers are no longer bulky objects that require space and create a clump of wires. Epson has come out with wireless printers and has focused on high quality printers that are relatively small in size. Printers were even gift material during the holiday season as consumers bought more than just phones and tablets. Based on the positive StarMine Predicted Surprise of 13%, the company seems to be on track to report earnings that exceed the street estimates when it reports full year numbers in April.
Source: Eikon/StarMine
A yen for profits
Analysts covering Epson have gradually increased estimates for full year operating profit (the preferred earnings measure in Japan) over the course of three months. The current I/B/E/S consensus estimate is ¥73.54 billion, up from ¥55 billion just 90 days ago. As you can see in the chart above, throughout the period, the SmartEstimate was above the consensus estimate, and each time, the consensus moved in the direction of the SmartEstimate. The SmartEstimate remains above the consensus estimate at ¥79.5 billion. The four most recent estimates are all above ¥80 billion, and as we get closer to the report date, it’s likely that other analysts will also be revising their estimates higher. Analyst have also noticed the strong product lineup at Epson. What’s encouraging for Epson is that it’s not just the bottom line that’s being revised higher; the revenue estimates are also being taken higher by analysts.
Source: Eikon/StarMine
Good outlook for margins
Trailing 4Q gross margins at Epson have been on the rise for the last two years and have reached a high of 36.4%. The same is true of the other two key margin measures, net and operating margins. More telling is the fact that in the last quarter, the margins were all above the industry medians, after being below the industry median for most of the last few years. The improving margins show that the company is growing revenues despite the fact that it is not lowering printer prices. Epson believes that customers will pay a premium for high-quality, differentiated products — and consumers seem to agree. The company has already done a great job of managing costs and now the strong margins and increasing revenues are likely to lift earnings even further.
Source: Eikon/StarMine
On the podium
On the most comprehensive StarMine model, the Value-Momentum model, Epson scores the highest score of 100. This model systematically combines both momentum and value factors to come up with a single score and the 100 score indicates that the company is one of the strongest companies on this measure in the region. Epson scores highly on other models too including a strong 98 on the StarMine SmartHoldings Model. A high score on this model indicates that Epson has fundamental characteristics that are being valued by institutional investors, and the company is likely to show up on their idea generation screen. An earnings beat is likely to increase interest in the company. Looks like Epson is heading for a gold-medal performance.
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