Jefferies, one of the biggest Nintendo bulls on Wall Street, says shares of the Japanese game maker could soar 80% - even if Switch sales are flat.
"We like Nintendo as, we believe, it offers the best earnings growth at the cheapest valuations in the sector," Atul Goyal and his colleague Chengyao Zhang, analysts from Jefferies, said in a note sent out to clients on Monday.
Even with a conservative estimate for flat Switch sales, the duo says operating profits could triple in three years. "In 1Q, operating profits grew c. 90% year over year despite no major game launches and no hardware growth," they said. "We believe Switch hardware sales can grow c.10-12% year over year for the next 3-4 years."
They added: "We conservatively assume that hardware will not grow, yet growing installed base is set to ensure software sales growth and, hence, profit growth.We expect more bundled software this year and a price cut as well as new variants next year."
The Jefferies analysts also believe digital downloads, digital-in-game-spending, and digital subscriptions should see margin expansion as mobile-game Dragalia Lost, Switch Online, and 1P Switch games will soon be launched and enter the Chinese market.
Goyal and Zhang maintained a "buy" rating and raised their target price to ¥65,100 - 80% above where shares are currently trading.
In late July, Nintendo reported first-quarter sales of 168.2 billion yen and a net profit of 30.6 billion yen ($274.9 million), beating Wall Street expectations.
Nintendo shares were down 11% this year.
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