NSK

Focus On Electrification And High-Value Products Will Diversify Future Sales Portfolio

AnalystConsensusTarget

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Based on Analyst Price Targets

Published

10 Feb 25

Updated

10 Jan 26

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AnalystConsensusTarget's Fair Value

n/a

67.4%

6.8%

67.4%

6.8%

You can edit this narrative until Jan 11 3:10 PM. Then, changes will post as Updates.

Author's Valuation

JP¥848.3330.4% overvalued

AnalystConsensusTarget Fair Value

Narrative

Updates14

Last Update 10 Jan 26

6471: Upgraded Guidance And Yen Tailwind Will Likely Fail To Justify Multiple

Analysts have maintained their fair value estimate for NSK at ¥848. A slightly lower discount rate and a marginally adjusted future P/E input support this unchanged price target, which reflects broadly consistent expectations for revenue growth and profit margins.

What's in the News

NSK raised its consolidated earnings guidance for the year ending March 31, 2026, with expected sales of ¥885,000 million versus prior guidance of ¥760,000 million, operating income of ¥30,000 million versus ¥22,000 million, and net income attributable to owners of the parent of ¥16,000 million versus ¥7,000 million (company guidance).
The company now guides for basic earnings per share of ¥32.71 compared with its previous projection of ¥14.32 per share for the same period (company guidance).
Management cites a robust business environment in the first half of the fiscal year to March 2026, with automotive production volumes above earlier expectations and demand supported by subsidy policy in China, together with efforts to control fixed and other costs and the effect of a weaker yen (company guidance).
NSK acquired all shares of NSK Steering & Control Co. Ltd., which oversees the steering business globally, resulting in NS&C and its subsidiaries becoming consolidated subsidiaries. The company recorded a gain on bargain purchase of ¥7,272 million under other operating income and a loss on step acquisition of ¥4,662 million under other operating expenses (company guidance).
For the second half of the fiscal year to March 2026, NSK describes continued sluggish demand in Europe, stagnation in the Chinese economy, and automobile production volume projected to remain steady (company guidance).

Valuation Changes

Fair Value Estimate remains unchanged at ¥848.33 per share, indicating no revision to the central valuation point.
The Discount Rate edged slightly lower from 8.54% to 8.45%, which modestly increases the present value of projected cash flows used in the model.
The Revenue Growth Assumption is effectively stable at about 8.58%, with only a very small numerical adjustment that does not alter the underlying outlook in the model.
The Net Profit Margin Assumption remains close to 3.51%, with only a minor tweak that keeps profitability expectations broadly in line with the prior setting.
The Future P/E Multiple was nudged slightly lower from 14.59x to 14.56x, indicating a marginally more conservative valuation input for future earnings.

Expansion in industrial machinery and electrification-focused automotive products aims to boost revenue and diversifies NSK's sales portfolio.
Structural reforms and digital transformation initiatives are expected to enhance profitability and operational efficiency by reducing operating costs.
Revised forecasts and industry challenges in key segments pose risks to revenue growth, with cost pressures impacting operating margins and regional market weaknesses adding further uncertainty.

Catalysts

About NSK

Manufactures and sells industrial machinery bearings, automotive products, and precision machinery and parts worldwide.What are the underlying business or industry changes driving this perspective?

NSK is focusing on expanding its industrial machinery sales to comprise 50% of total sales by promoting aftermarket sales and precision machinery products, which should positively impact revenues and potentially improve net margins given higher margins in these segments.
The company's initiatives in the automotive market with electrification focus and significant anticipated growth in the market share of products like eAxle and ball screws for electric hydraulic brakes may drive future revenue growth and profitability improvement through a more diversified sales portfolio.
Structural reforms, including downsizing and restructuring production in Europe and Japan and exiting some non-core businesses, are projected to lead to a ¥9 billion improvement in profitability by 2026, positively impacting net margins.
The shift towards producing more high-value products and enhancing local production in key regions like the Americas and China could improve cost efficiency and sales, potentially increasing both revenue and net margins.
Implementation of digital transformation and efficiency initiatives across global operations, particularly in labor force reductions and productivity improvements, is expected to enhance operational efficiency, positively impacting earnings by reducing operating costs.

NSK Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming NSK's revenue will grow by 4.3% annually over the next 3 years.
Analysts assume that profit margins will increase from 1.5% today to 3.5% in 3 years time.
Analysts expect earnings to reach ¥31.1 billion (and earnings per share of ¥64.23) by about September 2028, up from ¥11.6 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ¥46.0 billion in earnings, and the most bearish expecting ¥24.4 billion.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.4x on those 2028 earnings, down from 32.7x today. This future PE is greater than the current PE for the JP Machinery industry at 13.3x.
Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
To value all of this in today's terms, we will use a discount rate of 5.98%, as per the Simply Wall St company report.

NSK Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

NSK revised down its full-year fiscal 2024 forecast, expecting lower sales volume in both Industrial Machinery and Automotive segments, posing a risk to revenue growth.
The global automotive production volume is projected to decline, with real sales in the Automotive segment down 3.8% year-on-year, negatively impacting earnings.
Continued sluggishness in the wind power industry and a slow recovery in the semiconductor manufacturing equipment industry restrain revenue growth in Industrial Machinery.
Inflation and labor cost increases are impacting operating margins, with costs exceeding the savings from cost reductions in some areas.
Market weakness in Europe and stagnating recovery in China create regional risks, potentially affecting revenue from these key markets.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of ¥717.5 for NSK based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ¥800.0, and the most bearish reporting a price target of just ¥630.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ¥899.1 billion, earnings will come to ¥31.1 billion, and it would be trading on a PE ratio of 13.4x, assuming you use a discount rate of 6.0%.
Given the current share price of ¥778.0, the analyst price target of ¥717.5 is 8.4% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.