Capcom: Earnings Are Growing Even Before The Big Releases
Photo Credit: © Henry Saint John / Adobe Stock — used under Standard Editorial License.
The following is a 250-word excerpt from my full article on Seeking Alpha: A crowdsourced financial market content service where investors can share ideas, discuss news, and make informed investment decisions. Below is a link to the full article:
https://seekingalpha.com/article/4863898-capcom-stock-earnings-are-growing-even-before-the-big-releases
Summary
Capcom delivered strong Q3 results, with revenue up 30% year over year and operating margins expanding well above full-year guidance.
Digital contents drove earnings, as high-margin catalog and digital sales pushed segment operating margins to 62.8%.
Heavy development spending pressured cash flow, but management reaffirmed full-year guidance ahead of major Q4 releases.
Upcoming Resident Evil and Monster Hunter launches add upside to an already durable, catalog-driven earnings model.
My updated 12-month target price of $17.41 implies 38% upside, supporting a strong buy rating.
Investment Thesis
I assign Capcom Co., Ltd. (CCOEY) (CCOEF) a strong buy rating due to another excellent quarter of earnings and upcoming catalysts that position the company to further accelerate its earnings going into Q4. Capcom is a company whose earnings growth is not dependent upon blockbuster releases, since older titles dominate game sales and drive its operating margins above 60% per the company's digital contents segment of revenue. They also have a very diversified IP model that consists of video games, amusement equipment, arcade machines, licensing, and media—all of which work in tandem to extend the lifecycle of its franchises and reduce the company's earnings volatility, especially compared to their pure-play publishing peers. And, with roughly 38% upside, as calculated from my updated price target for the company, Capcom continues to be undervalued by the market, especially given the fact that they are a low capital-intensive business, with excellent capital efficiency and are able to convert a lot of their operating earnings into cash for further reinvestment…
