Nintendo has one key advantage over Xbox and PlayStation

Switch sales are going to surge as
Nintendo rolls out its new Pocket Monsters Smash
Brothers games ahead of the the holiday season, according
to Morgan Stanley.

These first-party titles that are solely for Nintendo consoles
give the Japanese game maker a key advantage —
a strong pricing power — over its global
competitors such as PlayStation4 and Xbox One, and
will help lift Nintendo shares over the long term, Morgan
Stanley analysts Masahiro Ono and Yui Yasumoto wrote in a note
sent out to clients on Monday. 

“Margins on 1st party software are high, as these margins
are driven up further by digital downloads, we think the
validity of valuation comparisons with powerful US publishers
is stronger in the case of Nintendo than for a con- sole maker
such as Sony,” said the two analysts from Morgan
Stanley.

They view the recent ¥37,232 share price as a near-term
bottom and say shares could hit ¥51,000 — 38% above where
shares were trading Tuesday. 

Ono and Yasumoto stated that the Switch
has a longer life cycle than the company’s Wii generation but
will match Wii’s peak annual sales, because they
see an effective “one person, one console”
penetration strategy that brings 3DS user migration to Switch
and Switch Online’s popularity among younger
users. 

 “The strategy for Switch is radically different from that
of the Wii generation – which was sold bundled with Will Sports
in Europe and the US, and tapped demand from adult users –
making it tough to appeal to child users with a console price
tag of $300 in the off season, and we expected Switch demand to
be particularly heavily skewed towards the Oct-Dec holiday
season,” they said, reiterating that
the current sluggishness in Switch sell-throughs
won’t have an extensive impact on Nintendo’s share price.

Morgan Stanley is not the only Wall Street firm that’s
bullish on the Japanese video-game maker. Of the 23
analysts who show coverage on Bloomberg, 20 have a “buy” rating
and just three have a “sell.”

Atul Goyal at Jefferies, who has a ¥65,100
price target,
believes shares could soar 80% even if Switch sales are
flat.

Nintendo shares were down 14% this year through
Monday.

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