Wirestock/iStock via Getty Images
Nintendo (OTCPK:NTDOY) was upgraded by Bernstein on Tuesday, with the investment firm citing excitement surrounding the next-gen console and better-than-expected software sales.
“Past console launch cycles have mostly been rewarding periods for investors (+33% median return holding 6 months before launch to 6 months after; one negative outcome out of eight), and the feedback we heard makes us think the Switch 2 will be more like the Switch and PS4 than weaker past cycles like the Wii U or 3DS,” analyst Robin Zhu wrote in an investor note.
Nintendo ADRs have gained more than 22% over the past year.
Zhu, who upgraded Nintendo to outperform from market perform, added that there should be support from third-party developers, which makes it less likely that there will be a “software air pocket” as there was with the original Switch in 2018.
“We remain somewhat skeptical of the more hopeful parts of the IP [monetization] thesis,” Zhu said. “But recent software sales have looked better than expected, and on our estimates Nintendo trades on 3.1x FY3/25E PB, versus 3.5-4.0x in the Switch launch cycle when software and Switch Online subscriptions were smaller parts of profits.”
Zhu also weighed in on Bandai Namco (OTCPK:NCBDY) and Capcom (OTCPK:CCOEY) and said that both Japanese video game developers offer value at current levels.
Bandai trades at some of the lowest levels in the sector and expectations are “modest” despite optimism around the latest titles in the Gundam, Elden Ring and Dragon Ball franchises, Zhu said. He also pointed out that the risk-reward for Capcom has gotten better and it’s likely that this summer is the “bottom” of the company’s recent down cycle, ahead of Monster Hunter Wilds in 2025, and the next Resident Evil.
Analysts are largely bullish on Nintendo (OTCPK:NTDOY). It has a BUY rating from Seeking Alpha authors, while Wall Street analysts rate it a STRONG BUY. Conversely, Seeking Alpha’s quant system, which consistently beats the market, rates NTDOY a HOLD.
