Seeking Alpha: Itochu May Pause, But Has A Good Long-Term Model

Japan's third-largest trading company, Itochu (OTCPK:ITOCY), has not done that well since I last wrote about the company. A 1% gain in the Tokyo-listed shares and a 4% gain in the ADRs is better than the performance of the Nikkei 225 (down about 6%), but not at all impressive relative to the other trading companies (Mitsui (OTCPK:MITSY) has done much better, Sumitomo (OTCPK:SSUMY) and Mitsubishi (OTCPK:MSBHY) a little better, and Marubeni (OTCPK:MARUY) worse). Some of this could be driven by a slower move toward share repurchases or steeper-than-average expected decline in FY 2015 ROE, with Itochu's rivals closing a bit of the gap in terms of returns on equity and capital.

Capital may be chasing those self-improvement stories, but I think Itochu is still the better play for the long term. Management has deliberately moved away from more volatile resource businesses and is looking for its focus on consumer-related products to generate above-average returns for the long-term. These giant unwieldy conglomerates are not going to suit every investor, but Itochu still looks undervalued below $29 to $32 per ADR.

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Itochu May Pause, But Has A Good Long-Term Model