SoftBank Gets First Sell Rating in Four Years After 80% Surge

(Bloomberg) -- SoftBank Group Corp. got the equivalent of a sell rating for the first time in more than four years after a surge in its shares pushed them beyond the price target for many analysts.

Dan Baker, an analyst with Morningstar Inc., downgraded the Tokyo-based company to two stars as its stock closed at 8,758 yen, the highest price since February 2000. The analyst’s price target for the stock is 7,400 yen. Shares have climbed about 80% in the last year and passed that target in December.

“The logic is pretty simple,” Baker wrote in an email. “If the share price rises to a certain level above our fair value then the star rating on the stock goes from 3-stars to 2-stars. This happens without us releasing a report.”

The two-star rating by Morningstar translates to a sell rating by Bloomberg, though Baker cautioned that his model doesn’t use traditional ratings of buy, hold or sell.

“The translation of a 2-star rating to a ‘sell’ rating is not done by us, but some of our clients do interpret it that way,” he wrote.

SoftBank, founded by Masayoshi Son, has been reaching new highs in recent months as it recovers from challenges, such as the coronavirus pandemic and the meltdown of WeWork. SoftBank had several of its portfolio companies go public in the past year and is preparing to take at least six more public this year. Among the successes are DoorDash Inc. and KE Holdings Inc.

Baker said his firm usually revises the fair value of SoftBank around the time it reports earnings, when it releases details on its holdings. Changes in the value of assets such as Alibaba Group Holding Ltd. also affect the fair value calculation.

SoftBank now has 16 buy ratings and one sell, according to data compiled by Bloomberg. The last time any analyst rated the shares a sell was August of 2016, according to the data.

The average 12-month price target is 8,864 yen. Shares were little changed Tuesday at 8,692 yen.