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.
