On Monday, Morgan Stanley (NYSE:MS) adjusted its stance on Osaka Gas Co Ltd (9532:JP) (OTC: OSGSY), moving from an "Overweight" to an "Equal-weight" rating. The firm also revised the price target downward to ¥3,580 from the previous ¥4,070.
The downgrade stems from the belief that potential share buybacks by Osaka Gas have already been factored into the current stock price, leaving little room for new catalysts that could drive up the share value. Morgan Stanley's revised price target reflects an updated calculation methodology, acknowledging the need for the company to enhance its return on equity (ROE) to improve valuation multiples.
Osaka Gas has set financial goals in its Medium-Term Plan (F3/25-27), aiming for a return on invested capital (ROIC) of about 5%, an ROE of 8%, and a shareholders' equity ratio of 45% or more, with a debt-to-equity ratio of 0.8x or less. However, the consensus forecast for the company's ROE in fiscal year 2027, as reported by FactSet, is lower at 7.1%, while Morgan Stanley projects an even lower ROE of 6.2%.
For Osaka Gas to achieve its ROE targets, the company will need to focus on reducing shareholders' equity and making strides in increasing its ROIC. These steps are considered critical for the company's financial performance and will be key factors to monitor for improvement in the future.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.