On Tuesday, Goldman Sachs (NYSE:GS) adjusted its stance on NS Solutions Corporation (2327:JP) (OTC: NSSXF) stock, downgrading it from Neutral to Sell despite increasing the price target to ¥2,930 from the previous ¥2,380. The decision follows a comprehensive review of the company's financial outlook and market performance.
The firm revised upward its operating profit estimates for the fiscal years 2025 to 2027 by 10% each year, citing strong demand in the manufacturing and financial services sectors, along with a slower-than-expected rise in selling, general, and administrative (SG&A) expenses.
Consequently, Goldman Sachs also elevated its 12-month target price, applying a higher price-to-earnings (P/E) ratio of 19X to the expected earnings per share for the fiscal year 2026, up from the prior 17X. This change aligns with the sector's average P/E ratio, which has recently increased from 19X to 20X.
Despite these positive revisions, the new target price is still 22% below NS Solutions' current share price. The analyst noted that the stock has significantly outperformed the TOPIX index, with a +47% gain since the onset of 2024, propelled by the announcement of a new medium-term business plan and a higher dividend payout ratio target. Nonetheless, the firm believes that the stock's current valuation is excessive when considering its medium-term profit growth potential.
Goldman Sachs outlined several factors that could potentially elevate the stock above the target price and alter their perspective to a more positive view. These include a stronger-than-expected improvement in the demand environment, the acquisition of large-scale projects, more effective cost controls, particularly in SG&A expenses, and enhanced shareholder returns as part of efforts to meet the company's return on equity (ROE) targets.
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