Nomura upgrades Canon stock to Buy on undervaluation and capital efficiency

Nomura/Instinet has upgraded Canon Inc. (TYO:7751) to Buy from Neutral, raising its price target to JPY6,400 from JPY5,100. The upgrade stems from Canon's significant 30% underperformance against the TOPIX over the past six months despite solid earnings, leading to a perceived undervaluation. Nomura cited management's increased focus on capital efficiency, including JPY300 billion in planned share buybacks by December 2025, and the potential positive impact of its next five-year business plan starting December 2026 as key catalysts for a market re-assessment. The new target is derived from applying a 15-16x price-to-earnings multiple to its forecast 2026 EPS, signaling conviction in future earnings growth and a narrowing valuation gap.

Analysis

Nomura/Instinet has upgraded Canon Inc. to Buy from Neutral, increasing its price target to JPY6,400 from JPY5,100, based on a significant valuation disconnect. The stock's underperformance of nearly 30% against the TOPIX over the last six months is viewed as excessive, especially given the company's solid earnings performance in its core printer and camera segments. The analysis suggests that the market has overly discounted macro risks, such as potential U.S. tariffs, creating an attractive entry point. Key forward-looking catalysts supporting the upgrade include management's enhanced focus on capital efficiency, highlighted by a JPY300 billion share buyback program set for completion by December 2025. Furthermore, the firm's upcoming five-year business plan, starting in December 2026, is anticipated to trigger a positive market reassessment. The new price target is underpinned by a 15-16x price-to-earnings multiple on a forecast 2026 EPS of JPY415, a valuation that still maintains a conservative 10% discount to the benchmark, signaling potential for further multiple expansion.

Key Decisions for Investors

• Given the perceived undervaluation and strong fundamental performance, investors may consider the analyst upgrade a rationale to initiate or add to long positions in Canon.
• Investors should closely monitor the progress of the JPY300 billion share buyback program as a primary indicator of management's commitment to enhancing shareholder value.
• The investment thesis relies on both near-term capital returns and a longer-term re-rating from the 2026 strategic plan, suggesting that a patient approach may be required to realize the full upside potential outlined in the target price.