On Friday, Nomura/Instinet analysts adjusted their stance on Lenovo Group Ltd (HK:0992). (992:HK) (OTC: LNVGY (OTC:LNVGY)), downgrading the stock from Buy to Neutral while maintaining a price target of HK$13.00. The change in rating comes after a period of strong performance from Lenovo, where the company consistently surpassed market expectations, including its most recent results for the quarter ending December 2024. The technology hardware giant, with a market capitalization of $21.4 billion and annual revenue of $62.9 billion, has seen its stock surge nearly 47% over the past year, trading near its 52-week high. According to InvestingPro analysis, the company currently shows signs of undervaluation despite its recent strong performance.
The analysts at Nomura/Instinet had previously upgraded Lenovo to Buy in October 2023, anticipating that the September quarter of 2023 might be the last time Lenovo would need to revise its FY24E business guidance downward. This outlook was based on the expectation of a recovery in the PC and server businesses in FY25F from the low base of FY24F. InvestingPro data reveals that Lenovo maintains a solid financial foundation, with a ’GOOD’ overall health score and a 27-year track record of consistent dividend payments.
Despite the past success, the Nomura/Instinet analysts now believe that Lenovo’s earnings momentum has likely peaked. This assessment suggests that there may be limited room for further upward earnings revisions by analysts for FY26E. The maintained price target of HK$13.00 is based on a multiple of 12 times the forecasted FY26F earnings per share (EPS) of USD0.14. Currently trading at a P/E ratio of 17.6x, Lenovo has demonstrated strong momentum with a 30% price return over the past six months. InvestingPro subscribers have access to 15 additional key insights about Lenovo’s valuation and growth prospects through the comprehensive Pro Research Report.
The decision to downgrade to Neutral reflects the analysts’ view that there is limited implied upside for Lenovo’s stock at this point. While acknowledging the company’s recent achievements in exceeding market expectations, the analysts appear to signal a more cautious outlook for Lenovo’s future earnings potential.
In summary, Nomura/Instinet has revised its recommendation for Lenovo Group Ltd., moving from a Buy rating to Neutral, with no change to the price target of HK$13.00. This adjustment is informed by the belief that Lenovo’s stock may not have much further to climb after a period of robust quarterly performances.
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