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You don't hear about Sony stock nearly as often as you should.
As a global conglomerate with its hand in microchips, film production, music, and consumer electronics (via its PlayStation and TVs), Sony is a household name with a long history of success.
But in the investing world, Sony Corp. (NYSE: SNE) takes a back seat to a host of much larger rivals in the diverse sectors in which it operates.
Its market cap of $80 billion, while impressive, is dwarfed by the likes of Walt Disney Co. (NYSE: DIS) (market cap: $265 billion) and Comcast Corp. (NASDAQ: CMCSA) (market cap: $200 billion), which owns NBCUniversal.
That's a shame. Sony is a solid, well-run company that's greatly undervalued right now – despite year-to-date gains of 34%.
It also has a solid Money Morning Stock VQScore™ of 3.6 out of 4.9.
In fact, there's a lot to like about Sony stock…
Sony Is a Global Powerhouse
People the world over know the Sony brand. It's among the top 100 brands in the world (ranked 56th by brand consultancy Interbrand).
And its diverse businesses keep revenue relatively stable.
Here's a snapshot of Sony's varied operations and how much each segment contributed to the top line in the 2019 fiscal year, which ended March 30:
- Game & Network Services (25.9%): Includes the PlayStation series.
- Financial Services (14.4%): Includes insurance operations, mostly in its home base of Japan.
- Home Entertainment & Sound (12.9%): Includes LCD televisions, home audio, Blu-ray players, and portable audio devices.
- Pictures (11%): Includes motion picture production, home video acquisition, and distribution and studio facilities.
- Semiconductors (9.8%): Includes the design and manufacture of various image sensor chips and other semiconductors.
- Music (9%): Includes the development, production, and marketing of recorded music as well as music publishing.
- Imaging Products and Solutions (7.5%): Includes video cameras, digital cameras, and broadcast products.
- Mobile Communications (5.6%): Includes mobile phones.
- All Other (3.9%): Includes the PC business, DVD and CD manufacturing, and a Japan-based Internet-related service business.
Three segments in particular are poised for strong growth this year. They happen to be the three biggest contributors to Sony's bottom line: image sensors, music, and gaming. Together, these three make up 44% of Sony's annual revenue and 70% of its operating profits.
Sensors: In its most recent quarter, Sony saw profits for its imaging sensors rocket by 59% to an all-time record. The reason behind the surge is rising demand from smartphone makers like Samsung Electronics Co. Ltd. (OTCMKTS: SSNLF), Apple Inc. (NASDAQ: AAPL), and Huawei Technologies.
In the arms race to offer fancier features in their high-end models, the smartphone makers are adding a third camera. That's boosting Sony's sales of sensors now. But demand will continue to rise as the triple-camera setup migrates to the mid- and low-range product lines.
The outlook for its imaging sensors is so good that in October, Sony raised its earnings forecast for FY2020 by 4%. Sony has more than half of the global image sensor market.
Gaming: Anticipation of the PlayStation 5 has hurt Sony's gaming sales this year as customers await the new model. But Sony is set for a surge in profits after the PlayStation 5 debuts just before the December holidays in 2020. The PlayStation is the best-selling game console of all time.
Music: Sony Music revenue rose 10.5% year over year in the most recent quarter, but the key here is in the underlying trends. While physical music sales (CDs and vinyl) and downloads have mostly been flat, streaming revenue is exploding.
Streaming revenue was up 21.4% in the last quarter alone. Sony is so optimistic about growth in this segment it raised its revenue forecast for the current year by 2%.
The publishing side of Sony Music is benefiting from last year's acquisition of EMI, which doubled that unit's operating income. Sony expects music publishing revenue to grow at a rate of between 5% and 7% over the next three years.
And yet the market is shortchanging Sony stock right now. According to Money Morning Executive Editor William Patalon III, Sony shares are undervalued by as much as 60%.
It all has to do with how the market perceives Sony's diversity…
Why Sony Stock Should Be Worth at Least $100
About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.