Should You Buy Sony's Turnaround?

NEW YORK (TheStreet) -- Sony (SNE) is betting on a turnaround. The question is, will its stock turn around, too?

The American depositary receipts, down 1.5% year to date, have lost over 85% of their value since the turn of the century. But the stock -- recently trading at $17.50 -- may present a good value for long-term investors. 

Sony, which has struggled because of intense competition, is trying to change its fortunes through massive restructuring. The company is selling assets to shore up its balance sheet and is banking on its console and mobile units for growth.

Because of its divestitures and restructuring, the company might struggle with top- and bottom-line growth in the coming year. Analysts, however, expect big improvements: According to Thomson Reuters, they are estimating Sony will earn 79 cents a share in fiscal 2015 ending next March, compared with an estimated loss of 92 cents a share for the fiscal year ended last Friday.

Sony has failed to compete effectively with Samsung (SSNLF), LG Electronics, Apple (AAPL) and several low-cost Chinese companies. The rise of these companies has come at the cost of the decline of Japanese electronic equipment manufacturers such as Sharp, Sony and Panasonic.

Like Sony, Panasonic has also struggled with growth. The company lost more than $14.7 billion over its two fiscal years ended in March 2013. Panasonic, however, has been able to pull itself together. Following a massive restructuring, job cuts and a renewed focus on industrial products, the company has boosted its bottom line. According to Reuters, the company, which was once on the verge of bankruptcy, is now thinking about investing a billion dollars in Tesla's (TSLA) enormous Giga factory.

Like Panasonic, Sony is restructuring and cutting jobs as it moves away from its money-losing businesses.

Sony has planned eliminate 1,000 jobs from its electronics division and is closing two-thirds of its retail stores in the U.S. Sony is also reducing its sales and marketing workforce in Australia and New Zealand, and is cutting 1,500 jobs in Japan. Overall, the company will eliminate 5,000 jobs around the world before March 2015.

Sony is exiting from its struggling VAIO PC business. According to analysts' estimates, the PC division is expected to report an annual operating loss of $295 million in the current fiscal year. Meanwhile, in order to fix its struggling TV business, Sony will spin off its TV segment into a separate business. Since 2004, the company's TV business has accumulated around $7.5 billion in operating losses.

Sony has also sold some significant assets over the past few years, including its New York offices for $1.1 billion. The company is also selling its birthplace -- its former headquarters building in Tokyo -- for $146.5 million.

The company is betting on its console and mobile divisions. PlayStation 4 sales have already topped 6 million units this year, outpacing Microsoft's (MSFT) Xbox One, which has had 3.9 million shipments.

Sony is also targeting further growth in smartphones. The company's flagship Xperia Z2 smartphone has received positive reviews at the Mobile World Congress.

The console and smartphones have already made an impact in Sony's earnings. In its fiscal third quarter ended in December, Sony's revenue rose 24% to $23.7 billion, and the company swung to a profit of $257 million from a loss of $106 million in the same quarter a year earlier.

While restructuring costs will lead to a net loss this year, that should be only a short term hiccup as Sony's long-term outlook is positive.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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