This is definitely not your father’s Panasonic. The company is transforming itself into a player in the automotive, avionics, and B2B arena.
Panasonic (PCRFY)
From Internet Wealth Builder
Recently, one of our readers asked us about companies that are the leaders in disruptive technology so that he can prepare his portfolio for the next wave of innovation. He was thinking particularly of electric cars and other related technologies and wanted to know which companies would be driving, no pun intended, development in that area.
There are some obvious choices like Tesla (TSLA) and Nvidia (NVDA), both of which I previously recommended. In response to the reader’s question, I started thinking about other companies that are active in future transportation and energy needs like General Electric (GE), but in the end, I settled on a less obvious choice. That company is Panasonic (PCRFY).
Most of us know Panasonic from their consumer products, such as televisions, audio equipment, kitchen appliances, air conditioning systems, washers and dryers etc. The company, which is based in Japan, also has a division that manufactures computers, projectors, SD memory cards, in-flight entertainment systems, and other related consumer facing businesses.
What got me thinking about Panasonic as a disruptive company was when I learned about the company’s partnership with Tesla and the huge giga battery factory that has recently been completed outside of Reno, Nevada. This enormous facility will be producing batteries for not only the Model Three Teslas (which is the mass-market vehicle that will start shipping later this year) but also batteries for Tesla’s Power Wall systems. These are designed to provide backup and off grid capabilities for homeowners and businesses and are often used as backup when solar energy systems are the primary power source.
Speaking of solar energy, Panasonic also joined forces with Tesla to begin solar panel production in Buffalo, New York. Panasonic is providing the financing while Tesla, through its subsidiary Solar City Corp., will be the chief customer and distributor of the final product.
Even without Tesla, Panasonic is a major producer of batteries and solar panels, which are used in other automotive and consumer applications as well as large storage battery products for industrial and consumer users. In addition to all this, Panasonic has a large division that focuses on semiconductors, advanced industrial sensors, lasers, polymer capacitors, and so on.
Last February, Panasonic appointed Tom Gebhardt as CEO of its North American operations. He had been the head of the company’s Automotive Systems subsidiary previously. He’s a very forward-thinking manager, as this quote from the Tesla newsletter indicates.
“If the scenario says the car drives itself, it’s similar to sitting in an airplane seat, because you’re no longer actively driving,” he said. “We see that as an evolution of the space that has infinite possibilities for us.”
In short, the consumer products company that we thought we knew is actually a massive multifaceted industrial business with highly sophisticated product lines that will be at the forefront of many of the disruptive technologies that we will all be using in the years to come.
All that said, is Panasonic a good investment? Here, the picture is mixed. So far, this year shares have gained 14% despite the fact that overall sales for the last four years have been flat to slightly down. The stock, which trades on the over-the-counter market in the U.S., hit a 12-month high of US$13.40 on Friday.
Management has done a good job of increasing operating profit despite the lack of top line growth. In fiscal 2017 (Panasonic has a year-end of March 31) the company generated an operating profit of ¥276.8 billion, up 3% over 2016. Sales were just over ¥$7.3 trillion for a net profit of ¥$172.4 million (¥100 = C$1.22).
This coming year, the company expects sales to increase by 6%, with a jump of 21% in operating profits as the forward-looking businesses they are investing in begin to make significant contributions to profits and revenue.
The stock pays semi-annual dividends, which totaled US$0.22 per share in the past 12 months. Panasonic has a history of gradually increasing the payout over time. Recently, the research firm Nomura upgraded the stock and a predicted a 21% increase in the share price over the next year.
I like Japan these days, and with Panasonic, you get global exposure and broad participation in the technology and industrial systems that should do well over the next few years.
Buy with a target of US$16.
Gavin Graham in Gordon Pape’s Internet Wealth Builder, www.buildingwealth.ca, 1-888-287-8229, June 5, 2017