Dividends aren’t the be-all and end-all of a company’s quality, but I would still argue that Canon’s (NYSE:CAJ) first dividend cut in 33 years is a pretty accurate reflection of the ongoing challenges at this Japanese conglomerate. Despite a high level of ongoing R&D, Canon’s revenue has fallen over the last five, 10, and 15 years, and the long-term average FCF margin has been basically static, as management hasn’t moved aggressively enough to transition more of its businesses to “cash cow” status.
Canon is not without hope – I see worthwhile potential in businesses like commercial printing, medical, and nanoimprint lithography – but the company’s ability to execute is in serious doubt. The shares do look undervalued today, but absent more dramatic progress on cost-cutting, I’m concerned this will be a value trap for investors.
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Canon's Valuation Reflects Serious Concerns About Growth And Margins
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