Matsushita Electric Industrial Co., Ltd. (MC) has established itself as a global company that uses leading-edge technology to manufacture electronic and electrical products, systems, and components. The company's management initiatives are also helping to develop competitive and value-oriented products. To handle competition, Matsushita has been implementing management plans for several years and is expecting to obtain benefits of various restructuring activities in its business and organization, sometimes involving joint ventures and other collaborative agreements.
However, there have been delays in restructuring of not-very-profitable consolidated subsidiaries. Fluctuating exchange rates have also made planning difficult for Matsushita. Currency fluctuations, notably among the Yen, the U.S. dollar, the euro, other Asian currencies, and other currencies in which Matsushita operates businesses (or in which Matsushita s assets and liabilities are denominated) will continue to be a concern. Almost half of fiscal 2007 sales were generated globally, thereby exposing Matsushita to currency fluctuation risk. These efforts have been costly and are continuing.
In fiscal 2008, the first year of the GP3 plan, Matsushita aims to achieve sales of approximately ¥2 trillion from 73 product categories in its V-products, which form the core of its growth strategy. In overseas businesses, aiming to increase sales in the emerging markets in addition to North America and Europe, Matsushita will set up the Russia Division, the India Coordination Department, and the Brazil Coordination Department.
Shares of Matsushita are currently trading at 21.1x fiscal 2008 EPADS, a premium to the industry mean. We believe that the company has demonstrated execution on its restructuring plans, and is positioning itself for growth over the long-term. However, this is priced into the shares. With continued price declines, mainly in digital products, and weak economic outlook, we maintain a Hold rating on Matsushita and cut our six-month price target to $22, which represents a P/E multiple of 18.2x our 2009 EPADS estimate.
