JPMorgan initiates Wacom stock with Overweight rating on improved profitability

JPMorgan has initiated coverage on Wacom Co Ltd (TYO:6727) with an Overweight rating and a JPY1,200.00 price target for December 2026, citing limited downside risk to earnings and a relatively low sector-relative valuation. The firm anticipates Wacom's technology solution business will experience revenue and profit declines in fiscal year 2025 but maintain stability, while its brand business has returned to profitability in Q1 FY2025 due to fixed-cost reductions and is projected to remain profitable throughout the fiscal year.

Analysis

JPMorgan has initiated coverage on Wacom Co Ltd (TYO:6727) with an Overweight rating and a JPY1,200.00 price target for December 2026. This positive stance is driven by the assessment of limited downside risk to earnings and a relatively low sector-relative valuation for the digital pen tablet manufacturer.

The firm projects a mixed performance across Wacom's business segments. Its technology solution business is anticipated to see year-over-year revenue and profit declines in fiscal year 2025, though it is expected to maintain stability despite these headwinds.

Conversely, Wacom's brand business has shown a significant turnaround, achieving profitability in Q1 FY2025 for the first time in ten consecutive quarters. This improvement is largely attributed to fixed-cost reductions implemented in FY2024, with JPMorgan forecasting sustained profitability for this segment throughout FY2025.

This substantial recovery in the brand business, coupled with the overall attractive valuation, underpins JPMorgan's bullish outlook. Investors should note the strategic importance of continued operational efficiency and the potential for the brand segment to drive future value despite challenges in the technology solution division.

Key Decisions for Investors

• Consider Wacom (TYO:6727) for potential long-term portfolio inclusion, aligning with JPMorgan's Overweight rating and JPY1,200.00 price target, supported by its low sector-relative valuation.
• Closely monitor the trajectory of the technology solution business for any signs of stabilization or further deterioration, as its projected declines could impact overall performance.
• Assess the durability of the brand business's profitability, which has significantly improved due to cost reductions, as its sustained performance is critical to the company's positive outlook.