On Tuesday, Morgan Stanley adjusted its price target on shares of NetEase.com (NASDAQ:NTES), a leading Chinese internet technology company, reducing it to $135 from the previous $150. Despite the lower price target, the firm maintained its Overweight rating on the stock.
The adjustment reflects Morgan Stanley's analysis of NetEase's business prospects. The company is recognized for its robust game revenue and profit growth, which are supported by its superior development capabilities and strategic global expansion. These factors are anticipated to shield NetEase from macroeconomic uncertainties and competitive threats.
Morgan Stanley projects that NetEase's era of globalization will lead to a significant acceleration in growth and margin expansion starting from 2025. The company's increasing focus on self-developed games, optimization of distribution channels, and strict cost control are expected to contribute to earnings per share (EPS) growth.
Furthermore, the narrowing of losses in its non-game segments and a planned $5 billion stock buyback program over the period from 2023 to 2025 are also seen as positive drivers.
The investment firm also highlighted NetEase's dividend policy, noting that the company currently pays out 30% of its GAAP net profit in quarterly dividends. This percentage could potentially increase in the future, providing additional shareholder value.
The Sum of the Parts (SOTP)-based price target given by Morgan Stanley is based on an expected 19 times 2024 earnings per share (P/E), which aligns with NetEase's historical average P/E ratio since 2018 and is consistent with the valuation multiples of its industry peers in the United States and Europe.
InvestingPro Insights
NetEase (NASDAQ:NTES) continues to capture the attention of investors and analysts alike. According to real-time data from InvestingPro, NetEase boasts a solid market capitalization of $61.74 billion. The company's strong financial health is reflected in a P/E ratio of 17.28, which is even more appealing when considering the adjusted P/E ratio for the last twelve months as of Q4 2023, standing at 15.17. This positions NetEase attractively relative to near-term earnings growth, with a PEG ratio for the same period at just 0.33.
One of the key InvestingPro Tips highlights NetEase's financial prudence; the company holds more cash than debt on its balance sheet, ensuring a robust liquidity position. Additionally, NetEase is not just a dominant player in the Entertainment industry but has also been rewarding its shareholders consistently, maintaining dividend payments for 12 consecutive years. This commitment to shareholder returns is backed by a dividend yield of 2.59% as of the latest data.
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