Overview
Morgan Stanley has outlined its preferred names within the Japanese construction industry ahead of a wave of full-year results and fiscal 2027 guidance expected in the coming months. The brokerage reiterated an "Attractive" view on the sector, citing a favorable supply-and-demand backdrop driven by strong demand for factory construction, data centers and redevelopment projects. At the same time, analysts expect companies to provide conservative operating profit guidance for fiscal 2027 and to accompany results with notable share repurchase programs.
Firm-by-firm highlights
Taisei
Morgan Stanley placed Taisei at the top of its list and kept an "Overweight" rating while lifting the price target to ¥22,600. The brokerage expects Taisei to guide to operating profit in a range of ¥155 billion to ¥165 billion for the fiscal year ending March 2027, which sits below Morgan Stanley's internal forecast of ¥181 billion. Analysts attribute the shortfall to Taisei's conservative stance on projecting margins for both civil engineering and building construction. Alongside its full-year results, Taisei is expected to announce a share buyback program of ¥40 billion to ¥50 billion, a move that Morgan Stanley anticipates will draw investor attention in the near term.
Kajima
Kajima earned the second position in the brokerage's ranking and retained an "Overweight" rating, with a raised price target of ¥9,500. Morgan Stanley estimated Kajima would guide to a fiscal 2027 operating profit between ¥200 billion and ¥210 billion, below the firm's own forecast of ¥234 billion. Analysts said recent underperformance in Kajima's stock already appears to have reflected some of the guidance risk, including potential declines in building project revenue and smaller contributions from large civil engineering design changes. Morgan Stanley also expects Kajima to buy back around ¥30 billion of stock, and anticipates that concerns tied to guidance should begin to recede following the full-year announcement.
Obayashi
Obayashi was ranked third and kept an "Overweight" rating, with its price target moved up to ¥4,900. Morgan Stanley forecasts Obayashi will guide to operating profit of ¥165 billion to ¥175 billion for fiscal 2027, trailing the brokerage's estimate of ¥186 billion. The anticipated year-on-year decline is linked to a reversal after one-off contractual receipts that supported margins in the prior year. Despite the more cautious outlook, analysts expect investor interest to remain elevated given a planned ¥30 billion share buyback and a shift toward strengthening shareholder returns, including a higher dividend-on-equity policy.
Shimizu
Shimizu was placed fourth among the major contractors and is the only company in the group with an "Equal-weight" rating, although Morgan Stanley raised its price target to ¥3,000. The brokerage projected Shimizu would guide to an operating profit of ¥120 billion to ¥125 billion for fiscal 2027, below Morgan Stanley's own forecast of ¥137 billion. Analysts described Shimizu's valuation as relatively full and noted a lack of immediate catalysts that might drive outperformance versus peers. The firm is expected to announce a ¥40 billion share buyback program, and analysts are also watching Shimizu's planned acquisition of American Engineering Corporation for any consequences it may have on future capital allocation decisions.
Analyst stance and market context
Across the four contractors, Morgan Stanley kept Overweight ratings on three names and maintained a more cautious Equal-weight stance only on Shimizu. The brokerage expects a generally conservative tone in fiscal 2027 guidance from the sector while noting that capital returns in the form of buybacks are likely to be significant. The combination of steady demand for industrial facilities, data centers and redevelopment projects underpins the firm's Attractive view of the industry even as near-term profit outlooks are tempered by conservative guidance assumptions and one-off effects from the previous year for some companies.
Implications for investors
Investors should expect earnings releases and guidance commentary to be the primary focus as companies announce full-year results. Share buyback programs are highlighted as a potential near-term support for share prices, while conservative guidance may limit upside in reported operating profits relative to sell-side forecasts.