By: Joseph Anason, AIM Student at Marquette UniversityDisclosure: 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.
• Mitsui & Co. Ltd. (OTC: MITSY) is the largest general trading business in Japan. The revenue sources are Mineral & Metal Resources (17.4%), Energy (10.5%), Machinery & Infrastructure (9.9%), Lifestyle (29.6%), Chemicals (24.1%), Innovation & Corporate Development (2.9%), and Iron & Steel Products (5.5%). The company has revenue exposure in Japan, United States, Australia, Singapore, China, and Europe.
• MITSY’s Core Operating Cash Flow for the six-month period ending Sept. 30, 2021, has increased 92.2% to $4.64 billion (USD) as compared to the previous period.
• MITSY is facing decreased exports from Japan due to decreased automobile production and bottlenecks in their supply chains. However, the world economy is expected to strengthen and rebound as infection rates decline and an increase in consumer spending.
• MITSY is benefitting from rising commodity prices.
• MITSY beats Q2 Consensus EPS for the Fiscal Year ending March 2022 of $19.62 by 16.86%.
MITSY is approaching its one-year anniversary in the AIM International Fund. The original drivers of “Energy Solutions, Market Asia, and Commodity Prices” from the original pitch are still in affect today. MITSY is well positioned in their global presence and ties to the energy space to benefit from the global push to fight against climate change. MITSY’s Lifestyle segment is benefitting greatly from the Asian market growth and goal of a better quality of life. Lastly, commodity prices are still near all time highs with inflation still being prominent.
According to the Federal Reserve Bank of St. Louis, inflation was at 2.20% on November 3, 2021 compared to 1.82% on November 3, 2020. Investors use real assets to help hedge against inflation, driving commodity prices. The increased prices contributed to the increased Q2 Gross Profit in iron ore and coal mining operations in Australia of $797 million (USD) and $142.8 million (USD), respectively.
In the latest earnings report, MITSY’s Core Operating Cash Flow increase is primarily driven by their Lifestyle, Machinery & Infrastructure, and Mineral & Metal Resources. The rebounding economy, increase in consumer spending, and targeting middle class consumers, drove Core Operating Cash Flow from the Lifestyle segment to grow 1,600% compared to the previous period. Machinery & Infrastructure and Mineral & Metal Resources grew 193% and 147%, respectively. Additionally, all other segments improved except for Innovation & Corporate Development, which experienced a 14% decrease.
What has the stock done lately?
MITSY stock price is currently down 11% since their peak at the beginning of August of $502.09. The peak was caused from MITSY beating Q1 Estimated EPS of $14.84 by 43.22%. The stock price otherwise has primarily been fluctuating between $420 - $477 since May 2021.
Past Year Performance:
MITSY has increased 40.69% over the last year. The 52-week price range is $320.32 – 502.09. MITSY has outperformed the benchmark iShares MSCI ACWI es-US over the last year by 7.72%. Additionally, MITSY has beaten Earnings EPS expectations for each quarter over the last year. Lastly, the company has paid an interim dividend of $0.40 (USD) per share, an increase of $0.05 (USD) per share dividend paid from the previous period.
Mitsui & Co. Ltd. is near the price target of $452.70 for when it was added to the portfolio. The company has had strong growth over the last year as the world economy is rebounding and heading back to operating as normal. MITSY is poised to benefit from the current commodity prices and will experience greater efficiencies as supply chains and exports improve. Additionally, MITSY is continuing to provide strong Core Operating Cash Flow. Furthermore, the company’s global presence and aligning goals of net-zero emissions will allow them to benefit from the global market’s goal to decrease carbon emissions.