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Nintendo (OTCPK:NTDOY) received an upgrade from Bernstein on Tuesday, with the investment firm citing excitement surrounding the next-gen console and better-than-expected software sales.
The Switch 2: A Bright Future
“Past console launch cycles have mostly been rewarding periods for investors,” said analyst Robin Zhu, referencing a median return of 33% holding 6 months before launch to 6 months after. “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.”
Nintendo ADRs have gained more than 22% over the past year.
Optimism in Software Sales and Third-Party Support
Zhu, who upgraded Nintendo to outperform from market perform, added that there should be support from third-party developers, making it less likely that there will be a “software air pocket” as there was with the original Switch in 2018.
“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 stated.
Value in Other Japanese Video Game Developers
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’ Viewpoints
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.
