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Sony (SNE) Falls After Moody's Downgrade

NEW YORK (TheStreet) -- Sony (SNE) lost 5.6% to $15.78 Monday after Moody's downgraded the electronics company's debt rating to "junk" status.

Moody's said Sony is facing pressure in the TV and PC markets thanks to "intense global competition, rapid changes in technology, and product obsolescence."

"The rating actions reflect Moody's view that while Sony has made progress in its restructuring and benefits from continued profitability in several of its business segments, it still faces challenges to improve and stabilize its overall profitability and, in the near term, to achieve a profile that Moody's views as consistent with an investment grade rating," Moody's said in a statement.

The firm did note that Sony's Devices, Imaging Products & Solutions, Music, and Pictures segments "are expected to remain profitable." The profitability of those segments is not enough to "support an investment grade rating for the overall corporation," however.

Moody's also expects the games division to improve thanks to the launch of the PlayStation 4. The segment likely won't reach the profitability levels seen in 2010, though, according to Moody's.

TheStreet Ratings team rates SONY CORP as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate SONY CORP (SNE) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, good cash flow from operations and growth in earnings per share. However, as a counter to these strengths, we find that the company's profit margins have been poor overall."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The debt-to-equity ratio is somewhat low, currently at 0.61, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Despite the fact that SNE's debt-to-equity ratio is low, the quick ratio, which is currently 0.54, displays a potential problem in covering short-term cash needs.
  • Net operating cash flow has increased to $1,223.24 million or 28.12% when compared to the same quarter last year. Despite an increase in cash flow, SONY CORP's cash flow growth rate is still lower than the industry average growth rate of 72.06%.
  • SONY CORP has improved earnings per share by 5.0% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, SONY CORP turned its bottom line around by earning $0.30 versus -$5.52 in the prior year. For the next year, the market is expecting a contraction of 41.7% in earnings ($0.18 versus $0.30).
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Household Durables industry and the overall market, SONY CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for SONY CORP is currently extremely low, coming in at 3.01%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -1.07% trails that of the industry average.

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