After Elliott’s entry: Daikin shares with a strong jump in price – investors are relying on strategic realignment

• Elliott sees Daikin as “significantly undervalued” and calls for reforms
• Analysts see around 10 percent further upside potential
• Stock hits new 52-week high

Elliott gets in and demands change

Shares in Japanese air conditioning maker Daikin rose sharply on Thursday after activist investor Elliott Investment Management announced its investment. In Tokyo, the stock has now climbed by around 14 percent and reached a new 52-week high at 23.065 yen. At the close of trading there was still an increase of 9.09 percent at 22,090 yen.

Elliott justified its investment with a clear undervaluation: The investment reflects the belief that Daikin’s “market-leading businesses and impressive long-term growth record are significantly undervalued by the market,” as the investor explained, according to CNBC.

At the same time, Elliott wants to actively push for change. Specifically, it involves measures to increase margins, improve shareholder returns and review areas that are not part of the core business. Bloomberg also reports that Elliott wants to “work constructively with the company” to increase profitability and close the valuation gap.

Valuation gap and growing pressure on Japan’s corporations

Getting started doesn’t happen by chance. According to Nikkei, Elliott owns about 3 percent of Daikin. While competitors such as Mitsubishi Electric and Hitachi have recently made significant gains, Daikin has so far lagged behind. The activist push also comes amid an environment in which investors are putting increasing pressure on Japanese companies to improve their return on capital.

Market observers see this as a possible turning point. Analyst Satoshi Taninaka of SMBC Nikko said that stronger capital market communications could help persuade investors “to re-evaluate the stock,” according to Bloomberg.

Fundamental drivers remain intact

Operationally, Daikin continues to benefit from structural growth. Demand for air conditioning and cooling systems is increasing, not least due to the boom in data center construction and increasing heat waves. Bloomberg Intelligence expects further growth through cooling solutions for data centers, particularly in the USA.

However, the company also faces challenges. Daikin recently referred to possible burdens from US tariffs, which could affect the operating result. In addition, a lawsuit is ongoing in the USA over alleged price fixing, as the company itself announced.

Analysts see further potential

Despite the recent price rally, analysts believe there is still room for improvement. Four reviews recorded by TipRanks are clearly in favor of the stock; there are neither hold nor sell recommendations. The average price target is 24.344 yen, around 10 percent above current levels.

Elliott’s entry is likely to significantly accelerate the discussion about strategy and capital allocation at Daikin. For investors, this brings the question into focus as to whether the group will actually manage to close the identified valuation gap.

Benedict Kurschat, Claudia Stephan, editorial team finanzen.net

Selected leverage products on Daikin Industries

With knock-outs, speculative investors can participate disproportionately in price movements. Simply select the lever you want and we will show you suitable open-end products on Daikin Industries

The leverage must be between 2 and 20

Advertising