Barclays (LON: BARC) upgraded its stock rating for HTC (TPE: 2498) for the first time since November 2011.
“After about four years, HTC has shifted from its focus on the high-end market, which is now dominated by Apple (NASDAQ: AAPL),” said Dale Gai, analyst for Barclays, in his latest research. “We believe that HTC’s strategy changes, including material cost structure improvement and a refocusing on the mid-level market, are finally likely to bear fruit as volume growth leads to a surprise earnings recovery for HTC.”
Gai also mentioned that HTC’s intrinsic values, including strong cash, strengthened intellectual property portfolio and solid partnership with telecom operators, have been overlooked in the past few years, while he also upgraded HTC’s stock rating from “underweight” to “overweight” and raised his price target for HTC shares from US$3.17 to US$6.34.
Gai said in the research that HTC is well placed to take the challenges in future tech trends, including wearable devices and Internet of Things, which is the trend of connecting more devices to each other and the Internet.
HTC, which is also known for one of the world’s major smartphone makers, dropped out of the top 10 ranking for global smartphone shipment last year, a decline that Gai attributed to poor management of its supply chain and inventory, and its underestimation of the growth in China smartphone brands. While the company has been experiencing shrinking shipment volumes and high operating expenses, HTC’s profits have disappointed investors in the past three years and it had only a 1.5% global share of smartphones shipped globally in 2014, Gai said.
“Our structural upgrade now is due mainly to the fact that we believe the company now fully recognizes the nature of the competitive landscape, and due to its strategy of product pricing and manufacturing that we believe is a good response to changes in the industry’s competition dynamics,” Gai said.
