Is Sony a Bargain in the Rough?

Any time a big-name company has its stock cut in half in just a few months,
it's worth sniffing around to see if there's a bargain amid the rubble. In
the case of Sony (NYSE: SNE ), however, there's no such value to be found. The
Sony story is ugly, and there appears to be little in the way of a silver lining
even with the stock at $17.20 compared with its February high near $37 and its
post-bubble high near $60 in 2007. The gradual implosion of a former market
leader stems from a lack of innovation to keep its brand relevant in an
Apple-dominated world. It was only a few years ago that Sony was a dominant
company within the consumer electronics space. Now, it is mainly a seller of
commoditized hardware not where you want to be in a soft global economy. The
strength of the yen one of the challenges Sony cited in its recent earnings
report certainly hasn't helped. The Japanese currency has surged in the
safe-haven trade of the past six months, weighing heavily not just on Sony, but
on all of the nation's exporters. A bull case for Sony here is that the yen is
tied to a weak economy with low interest rates, so it's only a matter of time
before the safe-haven trade unwinds, the yen softens and exporters begin to
recover. This might prove to be the case, but Sony's problems run deeper than
just unfavorable currency translation. This year will mark the fourth
consecutive annual loss for the company, which is seeing its businesses eroded
on the high end by Apple (NASDAQ: AAPL ) and on the low end by Samsung (PINK:
SSNLF ) and others. Sony is losing market share in phones and is unlikely to see
success in tablets, its music division is under pressure, and even its TVs
which have long commanded a premium price have turned into a money-losing
business. It's debatable how long consumers will be willing to pay this
premium at a time in which both Samsung and LG are gaining brand cachet and
Apple TV is looming on the horizon. Finally, sales of Sony's handheld devices
continue to be hurt by the rising competition from smartphones. In short, there
appears to be nothing to get consumers or investors excited about Sony again.
Sony is in a difficult position here. It can increase spending to help right the
ship, but this will lead to even more pressure on earnings. Alternatively, it
could go into survival mode and milk its current businesses indefinitely.
Neither course of action is the recipe for a meaningful recovery in its stock
price. For all of this, SNE shares aren't particularly cheap. The stock trades
at about 15 times forward estimates, but it's difficult to have faith in these
estimates when the company has whiffed on earnings three quarters in a row.
Also, estimates have been plunging all year, and it seems unlikely that trend
will reverse anytime soon. With estimates headed south, two things can happen:
Either the forward P/E expands or the stock price remains under pressure. The
latter scenario appears to be the most probable. Click to Enlarge Even for those
seeking a quick trade, Sony offers little to entice would-be buyers. The stock
has managed only two modest rallies this year; otherwise, its chart is making
the 45-degree downward slope that signals the need for a multi-month base to be
put in before there is any significant upside. The bottom line: For now, Sony
looks more like a value trap than a turnaround story. With a punk economy and no
catalyst to spark a longer-term recovery in its shares, look for opportunities
elsewhere rather than being tempted by Sony's falling stock price.