Nissan stock soars on surprise profit gain

Mon Oct 29, 3:36 AM ET

TOKYO (Reuters) – Shares of Nissan Motor Co (7201.T) surged 14 percent in heavy trade on Monday, posting their biggest one-day rise in seven years after Japan‘s No. 3 automaker reported a surprise gain in quarterly profit on a pick-up in global sales.

Nissan, owned 44 percent by Renault SA (RENA.PA), announced after the close on Friday that its operating profit for the July-September quarter rose 12 percent from a year earlier, handily beating the market consensus.

The automaker had been expected to suffer a fall in core profits on weak domestic sales and as demand for the Titan pickup and other high-margin light trucks shrank in its biggest market, the United States, due to heated competition and expensive fuel.

But Nissan’s global sales grew 6.6 percent to 941,000 vehicles in the quarter and group revenue jumped by 13 percent.

The strong results and upbeat outlook from Chief Executive Carlos Ghosn prompted several brokerages, including Nomura Securities, Mitsubishi UFJ Securities and Nikko Citigroup, to raise their ratings on Nissan stock.

“Based on our surveillance of potential new-model effects and other signals to indicate the timing of an earnings turnaround and the next buying opportunity, we conclude that the second quarter was the turning point,” Nikko Citigroup auto analyst Noriyuki Matsushima wrote in a report on Monday, adding he expected earnings to begin turning up.

“This represents a change in our earlier view, in which we had seen a second-half recovery as unlikely. The shares appear undervalued, and we recommend buying.”

Nikko Citigroup raised its rating to “buy/medium risk” from “hold/medium risk,” and lifted its target price by 20 yen to 1,420 yen.

Nissan’s stock ended up 14 percent at 1,283 yen, rising the most in one day since September 29, 2000, when it gained 15.5 percent. A hefty 77 million shares changed hands, more than four time the volume on Friday.

Rivals Toyota Motor Corp (7203.T) and Honda Motor Co (7267.T) also rose, both by 3 percent.

The benchmark Nikkei average (.N225) put on 1.2 percent.

“Nissan’s profit figures were better than expected and sales volumes are rising. This has given investors confidence,” said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments.

“But there are still worries about the dollar and consumption in the United States.”

Nissan’s July-September operating profit was 218.71 billion yen ($1.92 billion), beating an average estimate of 183.5 billion yen in a survey of four brokerages by Reuters Estimates.

Operating margin recovered to 8.4 percent — taking Nissan out of what Ghosn called a “crisis” situation with a margin below 8 percent.

Nissan joined Honda in reporting improved earnings. Its operating profit jumped 48 percent last quarter on brisk sales of its fuel-efficient CR-V crossover. Toyota, the world’s biggest automaker, is due to report on November 7.

Many analysts had expected Nissan to fall short of its full-year targets, which call for operating profit to rise 3 percent to 800 billion yen, partly due to the yen’s recent resilience against the dollar and soaring commodity prices.

Following the earnings announcement, JP Morgan reiterated its “neutral” rating on the stock but said the risk of Nissan missing its full-year estimates had receded and that this would likely be good for the share price over the near term.

“There are signs that the company is recovering from a host of problems, including product quality and inventories, and results were encouraging,” JPMorgan analyst Takaki Nakanishi wrote in a note to clients.

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Nissan and Renault SA Chief Executive Carlos Ghosn poses with the GT-R at its unveiling during the 40th Tokyo Motor Show in Chiba, east of Tokyo, October 24, 2007. (Kim Kyung-Hoon/Reuters)