Sunday, May 14, 2017

A current AIM Fund holding: Nidec Corp. (NJDCY) by Matthew Holldand. “Nidec - An Intriguing Opportunity Ready for 2018”

Nidec Corporation (NJDCY, $23.45): “Nidec Keeps Motoring Along”
By: Matthew Holland, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

Nidec Corporation (NYSE: NJDCY) develops, manufactures, and markets electric motors and related components and equipment.  NJDCY have customers across the globe, with the majority of customers based in the Asia Pacific and the United States.

• NJDCY’s business portfolio transformation increases diversity and growth opportunities.

• NJDCY could see margin improvement with new initiatives.

• Global solar energy trends show promising growth capabilities for NJDCY.

• Share repurchase plan could lead to price increases.

Key points: With SSD’s emerging as an alternative to HDD’s, NJDCY has decided to expand its portfolio.  This updated portfolio will shift from an IT focus to the automotive, appliance, commercial, and industrial markets.  This will provide a diversification benefit against the IT market.  Furthermore, it allows NJDCY to expand through high efficiency and motor drive systems.

Nidec Corporation has maintained rather steady margins the past few years.  New initiatives by management could soon change that, with goals of increasing gross margin to 31% and operating margin to 15% by fiscal year 2021.  This effort will be led by increasing automation and decreasing the current workforce by nearly 50%.  Additionally, internal manufacturing is expected to decrease direct materials costs.

NJDCY currently offers motors and control electronics utilized in the photovoltaic power generation system.  Solar capacities reached nearly 230 GW in 2015, and these capacities are expected to increase.  China, Japan, and the United States represent the three largest markets in solar energy.  Conveniently, these three nations account for nearly 64.1% of NJDCY’s revenues, representing strong growth capabilities.

NJDCY currently utilizes a share repurchase program.  Repurchasing shares below their accounting book value can help drive price increases in the near future.

What has the stock done lately?
Since NJDCY’s release of fourth quarter earnings, NJDCY’s stock is up roughly 2.17% in barely two weeks.  NJDCY’s stock is up 8.46% year to date.  With promising growth opportunities on the horizon, NJDCY’s stock may continue to trend upwards.

Past Year Performance: NJDCY has increased by 24.40% over the past year.  Much of this increase was driven by a strong stretch in July 2016 in which the price increased by 5.29% leading up to the release of first quarter earnings.  This strong streak can primarily be credited to a solid fiscal year 2015 and optimism for a strong first quarter.

Source: FactSet

My Takeaway

NJDCY remains an intriguing option considering strong past performance and future capabilities.  While NJDCY’s margin goals may be difficult to match in a short period of time, their efforts seem likely to improve margins at the very least.  Furthermore, their growth opportunities in solar energy and their expanding portfolio provide optimism for improved success.  Coupled with NJDCY’s share repurchase plan, these events provide a positive outlook for NJDCY going forward.


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