CANON INC. ADRs $32 - New York symbol CAJ

CANON INC. ADRs $32 (New York symbol CAJ; Conservative Growth Portfolio, Manufacturing & Industry sector; ADRs outstanding: 1.2 billion; Market cap: $38.4 billion; Price-to-sales ratio: 1.1; Dividend yield: 4.7%; TSINetwork Rating: Above Average; www.canon.com) gets 50% of its revenue by making office equipment, mainly printers and copiers. It also makes consumer products, such as cameras and inkjet printers (40% of revenue) and industrial components, including chips and other parts for TV sets, medical gear and mobile devices (10%).

The Bank of Japan’s move to lower the value of the yen has made the company’s products more affordable outside of Japan. However, the slow global economy is prompting companies to hold off on buying new office equipment.

At the same time, more consumers are using their smartphones to take pictures, which is hurting sales of entry-level digital cameras. In response, Canon plans to focus on more expensive models.

In the three months ended June 30, 2013, Canon’s sales fell 14.2%, to $9.8 billion from $11.4 billion a year earlier. However, earnings improved by 2.6%, to $671.7 million from $654.6 million, thanks to a costcutting plan. Earnings per ADR rose 5.5%, to $0.58 from $0.55, on fewer ADRs outstanding (each ADR represents one common share).

Canon spent 8.0% of its sales on research in the latest quarter. Its strong balance sheet will let it keep investing in new products: it holds cash of $7.6 billion, or $6.36 per ADR, and its long-term debt is just $16.6 million.

The company will probably earn $2.38 per ADR in 2013. The stock trades at 13.4 times that figure. The $1.51 dividend yields 4.7%.

Canon is a hold.

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